PRIVATE BUSINESS

Leeds City Council Bill (By Order)
	 — 
	Nottingham City Council Bill (By Order)
	 — 
	Reading Borough Council Bill (By Order)

Orders for Second Reading read.
	 To be read a Second time tomorrow.

Manchester City Council Bill [ Lords]

Order  read for  resuming adjourned d ebate on Question [25 November],
	That the promoters of the Manchester City Council Bill, which was originally introduced in the House of Lords in Session 2006-07 on 21st January 2007, should have leave to suspend any further proceedings on the Bill in order to proceed with it, if they think fit, in the next Session of Parliament according to the provisions of Private Business Standing Order 188A (Suspension of bills).—[ The First Deputy Chairman of Ways and Means.]
	 Debate to be resumed  tomorrow.

Bournemouth Borough Council Bill [Lords]

Order read for  resuming adjourned d ebate on Question [25 November],
	That the promoters of the Bournemouth Borough Council Bill, which was originally introduced in the House of Lords in Session 2006-07 on 21st January 2007, should have leave to suspend any further proceedings on the Bill in order to proceed with it, if they think fit, in the next Session of Parliament according to the provisions of Private Business Standing Order 188A (Suspension of bills).— [The  First Deputy  Chairman of Ways and Means.]
	 Debate to be resumed  tomorrow .

Canterbury City Council Bill

Order read for resuming adjourned debate on Question [25 November],
	That the promoters of the Canterbury City Council Bill, which was originally introduced in this House on 22nd January 2008, should have leave to suspend any further proceedings on the Bill in order to proceed with it, if they think fit, in the next Session of Parliament according to the provisions of Private Business Standing Order 188A (Suspension of bills).— [The First Deputy Chairman of Ways and Means.]
	 Debate to be resumed tomorrow .

Leeds City Council Bill

Order read for resuming adjourned debate on Question [25 November],
	That the promoters of the Leeds City Council Bill, which was originally introduced in this House on 22nd January 2008, should have leave to suspend any further proceedings on the Bill in order to proceed with it, if they think fit, in the next Session of Parliament according to the provisions of Private Business Standing Order 188A (Suspension of bills).— [The First Deputy Chairman of Ways and Means.]
	 Debate to be resumed tomorrow .

Nottingham City Council Bill

Order read for resuming adjourned debate on Question [25 November],
	That the promoters of the Nottingham City Council Bill, which was originally introduced in this House on 22nd January 2008, should have leave to suspend any further proceedings on the Bill in order to proceed with it, if they think fit, in the next Session of Parliament according to the provisions of Private Business Standing Order 188A (Suspension of bills).— [The First Deputy Chairman of Ways and Means.]
	 Debate to be resumed tomorrow .

Reading Borough Council Bill

Order read for resuming adjourned debate on Question [25 November],
	That the promoters of the Reading Borough Council Bill, which was originally introduced in this House on 22nd January 2008, should have leave to suspend any further proceedings on the Bill in order to proceed with it, if they think fit, in the next Session of Parliament according to the provisions of Private Business Standing Order 188A (Suspension of bills).— [The First Deputy Chairman of Ways and Means.]
	 Debate to be resumed tomorrow .

ORAL ANSWERS TO QUESTIONS

WALES

The Secretary of State was asked—

Mr. Speaker: I call Question 1.

Seaside Economy

Chris Ruane: Seaside towns have benefited enormously—

Mr. Speaker: Order. Wait until the Minister answers the question.

Chris Ruane: What recent discussions he has had with ministerial colleagues and Welsh Assembly Government Ministers on the seaside economy in Wales.

Wayne David: Wales Office Ministers have many discussions with Government colleagues regarding all matters relating to Wales, including the economy of seaside areas. Recently, the Secretary of State, accompanied by the First Minister and my hon. Friend the Member for Vale of Clwyd (Chris Ruane), visited several schemes set up under the Rhyl city strategy, including the entering retail course and the Rhyl Youth Action Group.

Chris Ruane: I apologise for that; I get excited about seaside towns. Seaside towns—I have déjà vu—in Wales have benefited enormously under this Labour Government. They are able to access billions of pounds of objective 1 funding. We have introduced mandatory licensing of houses in multiple occupation, and we have created tens of thousands of jobs. However, more needs to be done. There needs to be more co-ordination between the UK Government, the Welsh Assembly Government, and local government. Will the Minister visit my constituency and see what he can do to help join up government in seaside towns?

Wayne David: I commend my hon. Friend for his tremendous enthusiasm on behalf of seaside towns, and Rhyl in particular. He is absolutely right to stress that partnership is vital to success. The Rhyl city strategy brings together a range of partner organisations behind the shared strategic goal of reducing worklessness in the town. The Rhyl city strategy recently benefited from the Department for Work and Pensions deprived areas fund and the Welsh Assembly Government's decision to provide funding for employability training. I would be delighted to join my hon. Friend in visiting some of those projects in Rhyl.

David Jones: What consideration has the Minister given to the impact on the seaside economy of the presence of large numbers of transient residents? A recent study for Conwy county borough council revealed that almost a third of the concessionary bus passes issued in the borough had been granted to the occupants of holiday caravans. Does the Minister acknowledge that the presence of large numbers of transient residents can put a significant burden on the public purse, and will he raise the issue with colleagues at Westminster and in the Welsh Assembly?

Wayne David: This is an important issue, which should be looked at in a cool and moderate way. We should be careful to use terms that are not emotive and that do not paint an inappropriate picture. It is therefore important for us to have objective studies, while of course recognising that visitors are welcome to our seaside towns. Let us be clear: there are real signs in Wales of the tourist industry picking up after the admittedly difficult past few months. There are also clear indications that that progress is far ahead of what is happening on the other side of Offa's Dyke.

Nick Ainger: Is my hon. Friend aware that part of the success of the tourist industry in Wales is down to increased quality? May I recommend that he visit the Bluestone project in my constituency, which received £16 million of funding from the Welsh Assembly Government and has created 340 jobs—all local, apart from one—and 220 units of accommodation of the highest standard? That is the future of the tourist sector in Wales. I recommend that he talk to our right hon. Friend the Secretary of State, who is sitting next to him, and who has already visited.

Wayne David: I thank my hon. Friend for his comments, and I will certainly have a word with my right hon. Friend. I can already sense my visiting list becoming larger by the day. I have heard about the excellent work done in Pembrokeshire and the valuable contribution made by Bluestone. That sets an excellent example for businesses, and one of the things that stands out is the fact that it uses renewable energy in an extremely efficient way.

Patrick Cormack: By how much has the sale of candy floss increased during the Government's lifetime?

Wayne David: I know that the hon. Gentleman does not attend Wales questions very often, but they are a serious business, and it is important to recognise that tourism is one of the essential elements that creates a dynamic economy in Wales. It is very much our lifeblood, so I commend the Welsh Assembly Government for their tourism strategy, which is making great strides. There is a strong partnership between central Government and the Welsh Assembly Government to ensure that all aspects of tourism are effective—including, I suspect, the consumption of candy floss.

Economic Situation

Madeleine Moon: What recent discussions he has had with Welsh Assembly Government Ministers on measures to assist the Welsh economy in the current economic situation.

Robert Goodwill: What recent assessment he has made of the state of the Welsh economy.

Paul Murphy: Working in very close partnership, the United Kingdom Government and the Welsh Assembly Government are doing all that they can to help Welsh businesses and Welsh families through the financial difficulties that they now face.

Madeleine Moon: I am sure that my right hon. Friend is aware that over the past year Bridgend college has won numerous awards for partnership working with employers and trade unions to drive up standards and skills. Will he ensure that local colleges receive the funding that they need to make sure that our Welsh work force have the necessary skills and abilities to help them seek employment and to retrain so that work can both be kept and attracted to Wales during the difficult economic times?

Paul Murphy: Yes, indeed, I will do that. I talked to Jane Hutt, the Minister for Children, Education, Lifelong Learning and Skills, about further education and, indeed, the need for reskilling. Further education colleges have an important role to play in that. I worked in one myself for 17 years, and the skills that can be transferred, even for people in their 50s and 60s, are important if we are to deal with the economic difficulties that we face. I will indeed do that, especially with reference to Bridgend college, which does a very good job.

Robert Goodwill: The Welsh economy has lagged behind the rest of the economy during the boom. Is there any reason to believe that it will fare any better during Labour's bust?

Paul Murphy: I do not accept that the Welsh economy has lagged behind anything. Over the past number of years, there has been a huge change in the way in which people work in Wales. When I first came to Parliament, there were 3 million people out of work throughout the country, and many hundreds of thousands in Wales. The Welsh economy has been transformed over the past 10 to 15 years. Of course, we face huge difficulties like every other country in the world at the moment, but we have a robust government structure in Wales, with the Assembly working very hard with the Government. For example, only a few weeks ago in north Wales, we met businesses, both small and large, and local government, and they are all pulling together to ensure that the Welsh economy survives well in the present circumstances. The last thing that I want to do is talk down the Welsh economy.

Hywel Francis: I welcome the pre-Budget report, and the help that it gives the Welsh economy. I welcome, too, the Secretary of State's prominent role in Welsh economic summits, and the way in which that has engaged CBI Wales and Wales TUC. In that spirit of co-operation and consultation, I urge the Secretary of State to meet the Welsh automotive forum at the earliest opportunity so that he can hear at first hand its concerns about the future of employment in that sector.

Paul Murphy: Of course I will do that. As all Welsh Members and other Members will know, the Welsh automotive industry is hugely important. In my constituency, for example, at least 2,000 to 3,000 people work for that industry directly—and a few thousand people indirectly—making brakes. I recently visited Meritor in Cwmbran, and we discussed the impact on the automotive industry of the fact that small businesses could not get money from the banks which, in turn, meant that they could not buy things produced by larger industries. The action we have taken to try to encourage banks to lend to small businesses will have a knock-on effect on the automotive industry, which is a very important point indeed.

Adam Price: Was making the announcement through a single bullet point in the pre-Budget report that Welsh jobs at the Royal Mint are to be auctioned off to the highest bidder in the middle of a recession to pay for the economic incompetence of this Government either fair or responsible, and what did the Secretary of State for Wales do or say in Cabinet to oppose those plans?

Paul Murphy: If the hon. Gentleman had read, for example,  The Daily Telegraph, which I do from time to time, he would have seen that some 40 per cent. of British people—some 15 or 16 per cent. more than the rate for Conservatives—believe that the Government are doing a very good job of dealing with the economic problems at the moment. That is a complete change from several months ago. As I said to previous questioners, the Government are doing a very good job of dealing with the Welsh economy, together with the Welsh Assembly.
	So far as the Mint is concerned, the hon. Gentleman and I have both read the sentence in the pre-Budget report about
	"a study to explore the potential benefits of alternative future models for the Royal Mint".
	There is no mention of hawking anything at all; it is about better ways of getting value for money in the Royal Mint. There is nothing wrong with getting value for money out of Government Departments or Government agencies. The hon. Gentleman reads too much into a single sentence.

Martin Caton: My right hon. Friend knows that the manufacturing sector plays a larger role in the Welsh economy than it does across the whole of the UK. Does he agree that if Government at all levels protect and support Welsh industries as we go into recession, Welsh industries have the potential to lead us out of it?

Paul Murphy: Yes, of course I agree. My hon. Friend is right to point out the importance of the manufacturing sector in many Welsh constituencies, including his constituency and my constituency. It will play an important role in bringing us out of recession, which will undoubtedly occur in years to come. At the moment, however, our job is to ensure that we help small and large businesses and families in Wales. It is no good doing nothing, which is what the Conservative party wants to do. We must do something positive to help Welsh people and Welsh businesses.

Roger Williams: Unemployment is increasing in Wales at a faster rate than in any other part of the UK. Manufacturing jobs, particularly at Hoover in Merthyr Tydfil and Bosch in Llantrisant, are at risk. Even a Tory Minister promised to intervene in industry before breakfast, before lunch and before tea to protect jobs. When will the Secretary of State and his colleagues in the Assembly intervene to ensure that that massive loss of jobs is staunched as soon as possible?

Paul Murphy: The criticism levelled against the Government over the past couple of days has been that we have intervened too much—we cannot win. The Government have committed hundreds of billions of pounds to stop the banking system collapsing. If it were to collapse, what would happen to manufacturing industry and small businesses in Wales? The hon. Gentleman knows as well as me that all the agencies, the Welsh Assembly and the Government are bending over backwards to help our manufacturing industry and people who have unfortunately become unemployed, by finding new jobs and reskilling people. There is positive intervention by government, whether at local level, Welsh level or United Kingdom level.

Betty Williams: Does my right hon. Friend agree that, because of the work pattern history in Wales—slate, coal and steel—Welsh workers have proved themselves to be adaptable and are prepared to learn new skills? Is he aware of the excellent work carried out at the Faenol skills centre, which is now the conservation centre, in my constituency? Will he link my question with that of my hon. Friend the Member for Bridgend (Mrs. Moon) and ensure that sufficient funding is available for such skills centres, working closely with further education colleges in the area?

Paul Murphy: Yes of course I will. My hon. Friend makes the extremely important point that Welsh people have over the past dozen to 20 years been so adaptable and flexible in moving from traditional industries—in my constituency, coal and steel—to many others. That is important, because there is now a diverse range of jobs in Welsh constituencies. When the recession hits, we will be able to sustain ourselves more effectively than we could when we were reliant on one or two industries. I agree with my hon. Friend about the importance of reskilling in further education colleges and other institutions.

Cheryl Gillan: On Monday, the Prime Minister borrowed more money than any Government in history, in a gamble that puts a time bomb in the pocket of every family in Wales. Let us understand what that means: schoolchildren in Wales today will spend most of their lives paying off this Labour Government's debt. With the revelation of the secret plans to raise £5 billion through a VAT hike on top of the other tax increases, what impact will that have on the people and businesses in Wales?

Paul Murphy: The hon. Lady knows that my right hon. Friend the Chancellor of the Exchequer has already said that that will not be the case, but on the hon. Lady's general comments, the important point that Welsh people understand is that the Government are acting on their behalf—acting on behalf of businesses; acting on behalf of pensioners; acting on behalf of households. What would the Opposition do? Absolutely nothing. We have had lots of criticism about borrowing, as if we were the only Government in the whole world who were borrowing a great deal of money, but she knows that the United States, for example, is likely to borrow 25 times as much as we are, because they are doing exactly the right thing—as we are, in order to save our businesses and to help the people of Wales. The Opposition have absolutely nothing to offer them.

Cheryl Gillan: I hope that the Secretary of State is right, but he knows that he is not right when he says that we would do absolutely nothing. That is not the truth. With a further £5 billion of Government efficiency savings, the Secretary of State told  The Western Mail that the public sector should tighten its belt, and that the savings are about such things as procurement and the right contracts for IT. The Archbishop of Wales said today that people are just as important as the bottom line, so, in fairness to the people whose jobs will be affected, will the Secretary of State tell the House which procurement contracts and IT projects he was referring to, and which areas of the public sector in Wales will have to tighten their belts?

Paul Murphy: The hon. Lady knows as well as I do that the Government should at all times be conscious of value for money, but particularly at this time. She will also be aware that a large number of savings have already been made throughout Government on procurement contracts, computer contracts, and bought-in services such as human resources—not just by ourselves, but by the Welsh Assembly. However, she still has not told us what the Conservatives will do for Welsh people in these difficult times. It is no good just hoping that the recession will go away while doing absolutely nothing. We still do not know their plans.

Renewable Energy

John Robertson: What recent discussions he has had with the Welsh Assembly Government on renewable energy projects in Wales.

Wayne David: My right hon. Friend and I have regular discussions with Welsh Assembly colleagues on energy projects. Renewable energy has a vital role to play in the future energy economy of Wales and of the United Kingdom as a whole.

John Robertson: As an existing low-output energy source, nuclear should be a part of that mix. My hon. Friend will know that the Nuclear Decommissioning Authority will auction off the nuclear sites in Wales in the next few weeks, so will he assure me that we will not get into the battle that we have had in Scotland, where the argument has been thrown out with the bathwater, and that we will have a proper discussion about energy sources in Wales?

Wayne David: Yes, it is vital to have a comprehensive energy discussion and a strategy. Global energy challenges require a diverse and increasingly low-carbon mix that includes the consideration of all reasonable options. Increased energy efficiency, renewables, carbon capture and storage and nuclear power all have vital roles to play. I am sure that my hon. Friend will be aware that the Wales Office has publicly supported building at the existing Wylfa nuclear power station on Anglesey, and that is very important not only in itself but for the island's economy.

Lembit �pik: Is the Minister aware that Powys citizens would much prefer to have their street lights powered by renewable energy than to have them switched off wholesale by the local authority, plunging the county into a new dark age, the like of which has not been seen in the area since the blackouts of world war two? Will he consider diverting the extra 235,000 that has been given to the Wales Office for administration purposes to keep the lights of Powys on, using renewable sources?

Wayne David: Obviously, street lighting is tremendously important for all our communities. However, I am sure that the hon. Gentleman will acknowledge that the work of the Wales Office is extremely important, particularly with regard to the effective implementation of the Government of Wales Act 2006. The hon. Gentleman would not want those resources to be diverted, even if it were possible. He should really make representations to the Welsh Assembly Government. Then, I am sure, his comments will have some effect.

Joan Walley: Will the Minister consider visiting the National Centre for Alternative Technology in Machynlleth to see for himself the work being done on renewables? Will he talk with his Cabinet colleagues about ways in which the UK can help with the additional funding needed for the Wales Institute for Sustainable Education research project under construction there?

Wayne David: The Centre for Alternative Technology at Machynlleth is indeed extremely important; it demonstrates various ways of living a more sustainable lifestyle and its work is relevant not just to Wales but to the whole of the United Kingdom. I understand that the centre offers a consultancy service for business and private clients who wish to follow a more eco-friendly approach. I have visited the centre in the past, and I give a commitment to visit it once again as soon as is humanly possible.

Robert Key: Will the Minister visit the website www.stopthebarrage.com? He will find a growing list of organisations and individuals opposed to causing irreversible damage to the Severn estuary, but strongly in favour of using tidal flow energy as an important renewable resource.

Wayne David: The issue of the Severn tidal barrage is extremely important. Numerous studies have been carried out in the recent past and before that. As a Government, we have to recognise that we are committed to reducing CO2. The Severn tidal barrage could have a huge effect on the economy of the country as a whole and on our efforts to reduce carbon emissions. I am absolutely convinced that the Government will keep on looking positively at the initiative and studying the possibility of establishing an economically sustainable Severn tidal barrage.

Peter Hain: Will my hon. Friend ignore the strictures of the hon. Member for Salisbury (Robert Key) and look at the expert evidence from Dr. Rob Kirby? It shows that there has been a catastrophic decline in shore bird speciesespecially the dunlinin the past 40 years because of the different impacts of the environment on bird life in the Severn estuary. If we had a Severn barrage, biodiversity would rapidly increase. It would be a win-win, representing the biggest renewable energy project in Britain and an improvement in biodiversity, including shore bird life. Will the Government please go ahead and push the project?

Wayne David: I commend my right hon. Friend for the excellent work that he did as Secretary of State for Wales in taking forward the project. It is important. The Sustainable Development Commission has given it a positive recommendation, and there is a strong case for further investigation into a sustainable Severn barrage. I give a commitment to the House that the work will continue.

Public Sector Jobs

Elfyn Llwyd: What recent discussions he has had with the First Minister and ministerial colleagues on the economic effect of proposed public sector job reductions in (a) the European convergence area of west Wales and the valleys and (b) Wales generally; and if he will make a statement.

Paul Murphy: I am conscious of how important public sector jobs are to Wales; that is why in the past few years nearly 3,300 such jobs have come to Wales. For example, there have been 286 Pension Service jobs in my constituency.

Elfyn Llwyd: I am afraid that that is a rather complacent and disappointing answer. It is disappointing because for months now I have been pressing the right hon. Gentleman to intervene on the job cuts in Wales. Only this week, my hon. Friend the Member for Caernarfon (Hywel Williams) was told that 2,200 extra jobs would now be created in the Department for Work and Pensions. I urge the right hon. Gentleman to ask for a moratorium on the damaging cuts in Wales.

Paul Murphy: The hon. Gentleman has raised the issue on a number of occasions, as have other Members. Last week, I discussed the matter with my right hon. Friend the Financial Secretary. The hon. Gentleman is aware that as far as Her Majesty's Revenue and Customs is concerned, no job losses are involved, and there will be no compulsory redundancies. He is also aware that, only yesterday, my right hon. Friend the Secretary of State for Work and Pensions announced that there would be no closures of Jobcentre Plus offices in Wales, as had previously been planned.

Albert Owen: Will the Secretary of State for Wales join me in welcoming yesterday's announcement by the Secretary of State for Work and Pensions not to go ahead with the proposed closure of jobcentres in Wales at this crucial time? We need more support for front-line services that help those faced with unemployment. Investing in the unemployed is the price worth paying, not what the Opposition offered in the 1980s.

Paul Murphy: Yes, of course. I very much welcome what my right hon. Friend the Secretary of State for Work and Pensions announced yesterday. The whole point of his announcement was that this Government act on behalf of Welsh people and businesses, as opposed to the Opposition, who have absolutely nothing to do or say on the issue of the recession.

PRIME MINISTER

The Prime Minister was asked

Engagements

Peter Tapsell: If he will list his official engagements for Wednesday 26 November.

Gordon Brown: Before I list my engagements, I am sure that the whole House will join me in sending our profound condolences to the family and friends of Marine Alexander Lucas, who was tragically killed in Afghanistan on Monday. We owe him and all those who have lost their lives in conflict our grateful thanks for this service and for their sacrifice.
	This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall have further such meetings later today.

Peter Tapsell: I join the Prime Minister in his lament at the death in action in Afghanistan of yet another of our heroic young men.
	Since the chairman of the Royal Bank of Scotland has publicly apologised for wrecking his bank, will the Prime Minister apologise to the nation for wrecking the British economy?

Gordon Brown: I am very pleased to hear [ Interruption. ]

Mr. Speaker: Order. Let the Prime Minister speak.  [ Interruption. ] Order. Mr. Gray, be quiet. I keep on telling you to be quiet and you do not do it, so perhaps I will have to make a move against you. Behave yourself.

Gordon Brown: Let me remind the House of what the hon. Gentleman said last week. He said that we should boost consumer demand, cut VAT and
	increase investment in public works.[ Official Report, 17 November 2008; Vol. 483, c. 33.]
	He said that he was a Keynesian who believed in further borrowing. He persuaded me, but he did not persuade those on the Conservative Front Bench.

Colin Burgon: Does the Prime Minister agree that we should crack down on unscrupulous moneylenders such as Mobile Money Ltd, which recently sent a letter to a student constituent of mine, offering to lend her 5,000 in cash, with no credit checks, at an interest rate of 378 per cent.? Her father was outraged; does the Prime Minister share that outrage?

Gordon Brown: The Business Secretary is holding a summit today on the credit card industry. He is looking at excessive interest rates that have been charged. We have to have proper measures to regulate the industry when people are charging exorbitant rates. We will take whatever action is necessary, and I hope that it will have all-party support.

David Cameron: May I join the Prime Minister in paying tribute to Marine Alexander Lucas, who was killed in Helmand province on Monday? Our thoughts should be with his family and his fiance at this time. We should also pay tribute to the incredibly brave marine, reported in today's papers, who rugby-tackled a suicide bomber and saved literally dozens of his colleagues from death. The bravery of our armed forces is something that we can all be incredibly proud of.
	If the Government do not have a secret plan to increase VAT, can the Prime Minister tell me why the Financial Secretary to the Treasury put his signature to it?

Gordon Brown: We looked at every option over the last few weeks, including options that were taken up by the last Conservative Government, and we rejected the proposal to raise VAT, in favour of a proposal to lower VAT. Let me tell the House why. We looked at the 1980-83 recession, and we found that when the Conservatives raised VAT from 8 to 15 per cent., hard-working families were hurt. We looked at the 1990s and found that when the Conservatives raised VAT from 15 to 17.5 per cent., hard-pressed families were hurt. When the Leader of the Opposition was an adviser to the Treasury, it tried to raise VAT on fuel to 17.5 per cent. We looked at all options, as the Chancellor said. We rejected the option of raising VAT; we decided we would lower it, and I hope that the Conservative party will support us.

David Cameron: The Prime Minister cannot claim that this is some madcap idea that he immediately rejected. I have got the document right here. It is called the Value Added Tax

Chris Ruane: Give it back!

David Cameron: Give it back! the hon. Gentleman sayshe can get the document on the internet.  [ Laughter. ] There go the dinosaurs. It is called the Value Added Tax (Change of Rate) Order 2008 and it says this:
	Ministerial Sign-off...I have read the Impact Assessment and I am satisfied that...it represents a fair and reasonable view of the expected costs, benefits and impact of the policy...Signed by the responsible Minister: Stephen Timms...24 November.
	It is absolutely clear that the Government are planning a VAT bombshell to hit every family in the country. Let me ask the Prime Minister thishe should answer carefully; we may carry out some freedom of information requests. Was there a plan to raise VAT even further than 18.5 per cent.?

Gordon Brown: I have said that we had considered all options, but we rejected them. I shall tell the House why we rejected those options. We rejected them because, as the Chancellor said on Monday, we chose the options that were fairest to ordinary, hard-working families. The question is: do the Conservatives now support cutting VAT from 17.5 per cent., or are they simply the do nothing party that would not help people in times of real need?

David Cameron: So there we have it from the Prime Minister: this plan for even higher VAT was considered. The Prime Minister asks what we would do. I will tell him. We would freeze the council tax by cutting wasteful spending. We would cut small businesses' VAT bills by 10 billion by allowing them to delay payments. We would ensure that the loans got out of the banks by giving Government insurance to those loans, to get small business working again. Instead of sitting in Downing street making up nonsense about the Opposition plans, why does he not do something useful? Everybody knows that Labour is putting up taxes because there is a black hole at the heart of the public finances. Let me turn to why the black hole is so big. Will the Prime Minister confirm that his plans will double the national debt?

Gordon Brown: The national debt, even after the difficulties that we go through, will be lower as a percentage of national income than in France, Germany, Italy and Japan, and almost certainly in America. The message that the Leader of the Opposition is trying to communicate is that we can do something without spending any money. The truth is that his policy ends up doing absolutely nothing to give real help to families and businesses now. If he has a proposal, it means that he would have to spend to meet it. The fact is that the Conservatives would do nothing in the end and leave the families of Britain without real help and support. We are not going to take the do nothing road of the '80s and the '90s; we are going to give real help to families and businesses now.

David Cameron: There is absolutely nothing stimulating about what the Prime Minister is proposing. What he is proposing is to borrow a huge amount of money, to cut prices marginally when they are already falling and to hit every family with a tax bombshell in two years' time. What is so stimulating about that? I do not know where the Prime Minister goes shopping, but the shops are discounting by 20 or 30 per cent. already. Let me return to the national debt and read the Prime Minister the figures. Page 198 of the pre-Budget report says that last year the national debt was 527 billion. In five years' time, it will be 1.1 trillion. It is a simple question, but let me repeat it: does he admit that his plans will double the national debt?

Gordon Brown: We published the figures and they make it absolutely clear that national debt in Britain will rise to 58 per cent. It happens to be 58 per cent. at the moment in France and Germany and it will rise there. It is more than 100 per cent. in Japan and 90 per cent. in Italy, and is going to rise to 70 per cent. or more in America. When we are faced with unique and unprecedented circumstances, the question is: do we take the action that is necessary? We will give real help to families and businesses now.
	The Conservative answer is to let the recession take its course. I have talked to leaders in every part of the world and nobody is saying to me what the Conservative health spokesmanthe hon. Member for South Cambridgeshire (Mr. Lansley), the one person who has been guaranteed a job in the Cabinet, if there ever was one headed by the Leader of Oppositionhas said. He said that
	recession can be good for us.
	I have met nobody in the rest of the world who says that recession can be good for us. He should apologise for those statements.

David Cameron: The difference between my hon. Friend and the Prime Minister is that my hon. Friend has apologised, but the Prime Minister has never apologisedfor saying he would end boom and bust, for example. The Prime Minister just quoted a very interesting figure. He said that the ratio of debt to gross domestic product is going to reach 58 per cent. Will he confirm that that is exactly the same percentage that was reached when Denis Healey went to the International Monetary Fund because the country was bust?

Gordon Brown: The right hon. Gentleman does not seem to understand that, around the world [Interruption.] I am sorry that I have to give him an economic lecture every week, but he does not understand that this is a problem all around the world: in France and Germany, the percentage for GDP:debt ratio is in the late 50s, in Japan it is 95 per cent., in Italy it is 100 per cent., and America's is rising very fast. This is what has to be done in a period of downturn. The fact that the right hon. Gentleman even asks this question now suggests that he wants to do absolutely nothing. I have talked to every major country in the last few weeks and no leader is telling me that the recession should take its course. Only the Conservative party is saying that.

David Cameron: The fact is that this Prime Minister has given us the debt levels of Italy and the accounting practices of Enron. He talks about wandering around the world, but I bet he cannot find a single major country that is planning to raise taxes year after year after year because he has made such a mess of the public finances. Is not the truth about the PBR that it is not a response to the economic crisis but the consequence of a decade of his economic mismanagement? It is not about helping the country's economic situation, but about trying to help his political situation; it is not about being straight with people, but about concealing a tax bombshell that will hit every family in the country. Is not the real lesson from the PBR this: the country is going bankrupt, the Prime Minister has been found out and new Labour is dead?

Gordon Brown: The real lesson of this PBR is that we are giving real help to families and businesses now. The Conservatives would refuse to give real help to families and businesses. We are cutting VAT; we are increasing the cash flow to small businesses; and we are raising the pension and child benefit from January. We are doing everything that the Conservative party opposed and everything that they would have done if they were in charge in a recession. They offer no help to hard-pressed families; they have abandoned compassion in Conservatism; they are no longer a credible Opposition; and the right hon. Gentleman is the do nothing leader of a do nothing party.

John McFall: At the Treasury Select Committee hearing yesterday, the Governor of the Bank of England made it crystal clear that the single most pressing economic issue today is for banks to resume lending to the real economy. While welcoming financial stability, he and his colleagues said it would come to nothing if this lending did not resume. Given the competitive environment in which banks operate, not one of them is willing individually to strike out on its own. May I impress on the Prime Minister the need to get them into a room and ensure that they collectively and simultaneously resume lending, as they were given 37 billion for that precise purpose, and their social obligation is an economic imperative for the country?

Gordon Brown: I am grateful to my right hon. Friend, who will have noticed that the Royal Bank of Scotland issued a statement on Sunday saying that it was going to refuse to raise the rates for overdrafts. That is something that must happen right across the banking system. We are talking to the banks now and hope that we can make progress with them. The flow of cash to small businesses in particular will be helped by the expansion of the small firms loan guarantee scheme in the Budget, the 1 billion for export credits and the deferment of payments of tax and national insurance that we have agreed that HMRC is prepared to offer. I also agree with the Governor of the Bank of England that the action we took to balance monetary policy with fiscal action in the economy was the right thing to do. Only the Conservative party stands out against it.

Nicholas Clegg: May I add my own expressions of sympathy and condolence to the family and friends of Marine Alexander Lucas, who tragically lost his life in Afghanistan?
	As a Sheffield Member, I am sure that I speak on behalf of the whole House and everyone in Sheffield when I say how horrified we all were to hear of the terrible abuse suffered by two daughters at the hands of their own father. We hope that the victims will now have the time, the space and the privacy to rebuild their lives.
	In his pre-Budget report the Chancellor mentioned fairness eight times, but, as always with this Government, it pays to read the small print. The Chancellor's VAT cut will benefit big spenders much more than it will benefit hard-pressed families. His national insurance hike will hit millions of low earners. That is not fairness; it is a betrayal. The Chancellor had the chance to make our tax system fairer. Why did he blow it?

Gordon Brown: I join the right hon. Gentleman in saying that the whole House, and indeed the whole country, will be outraged by the unspeakable events that have been reported as having happened in Sheffield and other parts of the country, and utterly appalled by the news of the systematic abuse of two sisters by their father over such a long period. A serious case review is under way. It must involve all the authorities: social services, police and health. They have been in contact with the sisters, who are rightly protected from the media for the sake of their privacy and confidentiality. People will rightly want to know how such abuse could go on for so long without the authorities and the wider public services discovering it and taking action. If there is a change to be made in the system and if the system has failed, we will change the system as a result of the inquiries.
	As for fairness, we have raised the pension by 4.55, and we have raised it from January. We have raised child benefit to 20, and we have raised it from January. We have raised child credit and pension credit, and we are continuing to raise them to take pensioners and children out of poverty. The best that we can do is continue the policies that have taken children and pensioners out of poverty, and not follow the right hon. Gentleman's policy of cutting 20 billion out of the public services.

Nicholas Clegg: I am grateful to the Prime Minister for what he said about the importance of the independent review asking all the questions that must be asked.
	On the issue of fairness, once again we have been given a list rather than an answer, and misleading bluster rather than a real response. The Prime Minister could give permanent big, fair tax cuts to millions of ordinary British taxpayers, if only he would close huge loopholes such as the 8 billion pension tax bonus for top earners, or the way in which millionaires can still receive their capital gains while paying much lower tax rates than their cleaners pay on their wages. He could have done that. Instead, he has toyed with the hopes of the British people. Why has he let them down?

Gordon Brown: The right hon. Gentleman seems to forget that we are giving real help to families, and that we are giving that real help now. He may think that the pension is only 30, but I can tell him that we are raising the pension by a higher rate than in many years, that we are bringing that forward to January through a 60 payment, and that we are also helping children and families through this difficult time. The cut in VAT will benefit low-income families, and the right hon. Gentleman should understand that that is the case.
	As for the loopholes in allowances, every year we take action on loopholes, and every year we take action when it comes to looking at where there are abuses of the system. The right hon. Gentleman should look at the proposals that have been put forward by the Chancellor, which will be debated in a few minutes. We are the party of fairness. A party proposing 20 billion of cuts is not a party of fairness.

Nick Palmer: Does the Prime Minister agree that it is high time the utility companies passed on the reduction in gas prices to people at home who are looking forward to the coming winter?

Gordon Brown: Ofgem will publish a report on that very soon. It is imperative that when oil prices come down, companies are as quick to put prices down as they were to put prices up.

Richard Benyon: Last week, the Children's Secretary said that we could not read the serious case review on the death of baby P because of a ruling by the Information Commissioner. That came as a surprise to the Information Commissioner, who then issued a statement saying that the Children's Secretary had not been in touch with his office on the matter. Will the Prime Minister now approach the Information Commissioner, so that we can all read the truth that his Minister has sought to suppress?

Gordon Brown: The Children's Secretary has just informed me that the report is confidential but he has allowed the Opposition spokesman to read it.

Ian Davidson: Does the Prime Minister agree that the spoiled rich kids just do not get it? Does he agree that it is easy for those who have been born with a silver spoon in their mouth not to want to do anything, but that real people want some action taken, and will he tell us what he is doing internationally with other countries to get us out of this crisis?

Gordon Brown: My hon. Friend is absolutely right: the key is action nationally and internationally, and I can tell the House today that we have agreed with our international partnersand particularly Japan, which currently has the presidency of the G8, and Premier Asothat the next meeting of the G20 will be held in London on 2 April. It will deal with the major questions of the economic actions that are necessary. I have talked to the incoming US Administration, and President-elect Obama expects to come to Britain at that time.

Brooks Newmark: Only three countries in the developed world have a bigger budget deficit than the UK. Can the Prime Minister name even one of them?

Gordon Brown: America.

Siobhain McDonagh: This evening, councillors in the London borough of Merton will be considering Labour proposals to cut the council tax by 100, to help local families and stimulate the local economy. Would my right hon. Friend advise councillors to vote in favour of Labour's low-tax proposals?

Gordon Brown: The important thing at the moment is that Labour councillors and the Government want to give real help to families and businesses now. The Conservatives have left people in a position where they have no prospect of help now. I believe they will live to regret that, because people need real help at Christmas and beyond, and we are going to give that.

Nicholas Soames: Will the Prime Minister reassure the House that all the millions of people who are suffering financial hardship because of his mismanagement of the economy [Interruption.]

Mr. Speaker: Order. The hon. Gentleman is asking a question; he should not be shouted down.

Nicholas Soames: There are millions of people who are suffering financial hardship because of the Prime Minister's mismanagement of the economy. Will he assure the House that, in the inevitable cuts to the Budget that are to follow his profligacy, he will leave the defence budget alone so that British troops may continue to fight as they are?

Gordon Brown: Public spending will continue to grow, and we are not going to get in the position of the last Conservative Government, who cut defence spending by 20 per cent.

Tom Clarke: May I congratulate the Government on supporting the United Nations' decision to add 3,000 troops to those serving in the Congo, where many people are dying? In view of the need for quality troops on the ground in weeks rather than months, is my right hon. Friend the Prime Minister in a position to tell the House what the deployment time frame will be, and what future contingency plans are in the minds of the UN in the meantime? Will he accept that whatever other international

Mr. Speaker: Order. Only one supplementary should be asked; there are about four in that question.

Gordon Brown: I have written to all potential contributors to a UN mission to the Democratic Republic of the Congo asking them to contribute the extra troops. We have been prepared to put up extra money for that to happen, but I think my right hon. Friend, who takes a great interest in these matters, will agree that the solution will eventually be a political solution, not a military one. That is why we have supported the UN envoy ex-President Obasanjo, and that is why Lord Malloch-Brown is in the DRC today, and in the region, to urge all parties to respect the ceasefire. I will reinforce that message by talking to President Kagame very soon.

Phil Willis: Next Friday, I shall visit my local hospital to thank some 800 volunteers who give their services free to the people of Harrogate. They, like the army of people around the country who volunteer their services, see their costs increasing, but next year the whole charitable sector will have its income drastically reduced. This week's statement contained almost no additional support for charities. How can the Prime Minister accept giving irresponsible bankers billions of pounds while the charities are on the streets with begging bowls?

Gordon Brown: In the last Budget, we announced additional support for charities, because we knew the difficulties that they were going to face. That additional support was given in April last year, and we will look again at this in time for the Budget.

Joan Ryan: May I welcome this Government's investment in public transport? Does my right hon. Friend agree that in return for that investment, the public have every right to expect the highest levels of customer service, and that this is a matter of value for money for the British taxpayer? Does he further agree that train companies, such as First Capital Connect, that are planning to cut customer service levels at stations such as Enfield Chase should think again?

Gordon Brown: I am pleased to join my right hon. Friend in saying that public investment is essential. What happens at Enfield Chase station is a matter that I shall examine with her, but she is aware that the provision of ticketing facilities is governed by the rail industry processes. We continue to increase transport investment through the downtown. We will not make the mistakes that were made in the past.

Simon Burns: The Prime Minister often claims that the source of the current economic crisis emanated from the United States. If he believes that, why does he continue to use Alan Greenspan as an adviser?

Gordon Brown: Dr. Greenspan spoke to the committee in the Senate only a few weeks ago, and said that two mistakes that had been made had to be sorted out. The first was that the executives of companies had not taken the public interest into consideration in the way that they should have donewe are taking action on that, although not with the support of the Conservative party, as I understand it. The second was that people were passing on risk without responsibility. These are two proposals for changes that he has made and that we are trying to introduce into the international financial system. That is why we have taken note of what he said in recommending these things.

Mark Lazarowicz: May I welcome the credit card summit that my right hon. Friend mentioned? Will he ask the Secretary of State for Business, Enterprise and Regulatory Reform to examine the issue of credit card cheques, which are one of the most pernicious ways of trapping vulnerable people in debt? In previous years, they have been marketed particularly heavily at Christmas, and we do not want that to happen this year.

Gordon Brown: As we know, a number of problems have arisen with organisations that pursue Christmas schemes for savings and for credit cards. I will look at exactly what my hon. Friend says. If he can provide me with the information about the companies involved, the Business Secretary will examine it.

Douglas Carswell: The Prime Minister did not give us a straight answer before. Will national debt double, to more than 1 trillion, under his premiership?

Gordon Brown: As I said before, the figures are set out in the Budget document. I also said that the reason why Conservatives are asking this question is that they do not want us to invest now to prevent hardship for families and businessesthey want us either to cut spending or not to be in a position to help families and businesses. They are simply confirming that they are the do nothing party with a do nothing leader and a do nothing policy.

David Anderson: Does my right hon. Friend agree that we should welcome the statement made by the shadow Health Secretary, because he has exposed the real position of the Tories? They do not understand recessions and they do not accept what happens, and we should refuse to listen to them because they are the do nothing party.

Gordon Brown: I think that the House should know that the shadow Health Secretary, who, I repeat, is the only person being guaranteed a place by the Leader of the Opposition, said:
	Interestingly, on many counts, recession can be good for us.

Mr. Speaker: Order. I am going to move on from this one.

David Jones: Why has the pound lost a quarter of its value against the dollar since July?

Gordon Brown: As everybody knows, we do not give a running commentary on the currency, and never have. I repeat the words of Lady Thatcherto talk the currency down, as the Conservatives are doing, is un-British.

Christine Russell: What steps does my right hon. Friend intend to take to keep construction workers at work building affordable homes to buy and rent in parts of the country where there is a great scarcity of social housing?

Gordon Brown: My hon. Friend is absolutely right. We have advanced public investment in construction and in other areas, particularly in social housing. Again, that is possible only because we are prepared to spend additional money now. This is the real dividing line in politics: we will give real help to families and businesses now; the Conservatives would do absolutely nothing to help people.

Local Government Finance Settlement

John Healey: With permission, Mr. Speaker, I should like to make a statement on finance for English local authorities in 2009-10. Last year, I announced the first ever three-year settlement, giving greater certainty, flexibility and equity in funding for local government. Today, I am confirming the second year, 2009-10, of this settlement for formal consultation, and the indicative allocations for 2010-11. My hon. Friend the Minister for Security, Counter-Terrorism, Crime and Policing is doing the same for police authorities today. In both years, the formula, or core, grant figures are the same as we set out in this House in January. Alongside this, I am publishing second and third-year figures for 70 grants from nine departments, 43 of which will be paid each month through the new area-based grant, with no strings attached.
	Let me be clearin line with the Government's policy on three-year settlements, it is not intended that the 2010-11 formula grant proposals will be changed from those published today. Formula grant, which includes revenue support grant, redistributed business rates and police grant, will total 28.3 billion in 2009-10 and 29 billion in 2010-11increases of 2.8 per cent. and 2.6 per cent. respectively. We will also continue with the same grant floors, so every authority will receive a formula grant increase in every year of this three-year settlement. In total, Government revenue funding for local authority services will be 73.1 billion next year and 76.4 billion the year afteroverall grant increases of 4.2 per cent. and 4.4 per cent., in line with the figures that we published last year.
	This means that with a Labour Government, councils have had above inflation increases every year since 1997, and now have an extra 8.9 billion through this current three-year settlement. In spite of significant pressures on public finances, this confirms the Government's continuing commitment to local government and continuing investment in the local services that people need. Indeed, in the face of an expected recession, this commitment is even more important. I know that there are pressures on local governmentcosts, demand for services and revenue streams are all affected by the economic downturn, just as they are for national Government. Our three-year commitment on the core grant and three-year figures for specific grants help councils to take tough longer-term decisions on their budgets. Our mainstreaming of an extra 5.7 billion of grants and the removal of ring-fencing help councils to manage their finances, and our delivery of a single set of 189 performance indicators, together with the local area agreements, help councils to set their priorities for their area.
	Included in the grant figures are allocations for the nine new unitary authorities that start in April 2009. I have laid before the House, today, regulations to ensure that the new councils will have the powers that they need to set their budgets and council tax for 2009-10. Also today, I am launching a consultation on alternative notional amounts, which will enable like-for-like comparisons to be made on the budget requirements for the new unitary councils if the Government decide to use our capping powers.
	Last year, I explained to the House that we expect of local government the same 3 per cent. annual efficiency improvements that we expect of the rest of the public sector. Delivering that will mean the equivalent of 89 in council tax for the average band D home this year, and that councils will have an extra 4.9 billion, over three years, to spend on improving services or controlling council tax pressures. The public have a right to expect better value for money from local and national Government. At this time, people expect councils to tighten their belts like everyone else, so I am today publishing figures on the new efficiency savings that councils expect to make in 2008-09. At just more than 1 billion, it is similar to what councils have achieved in the past, but that is not good enough now. Councils need to find more than 1.5 billion in new savings every year.
	The efficiency figures that I am publishing also show how each council measures up to its efficiency challenge. To ensure that local residents have easy information about their council's efficiency performance, and to encourage them to challenge their council to do better, I have decided, following consultation, that councils will be required to set out standard efficiency figures on council tax bills from next year.
	The introduction of the three-year settlement, the reduction in ring-fencing, the new local area agreements and the new local performance framework offer substantial opportunities for better working and efficiencies across local services to manage pressures on council tax bills, including in the areas being examined by the five work streams in the operational efficiency programme that was set out in the pre-Budget report earlier this week. For the future, we will build on that to see, ahead of the next spending review, how local authorities and their partners can prepare for the tough challenges that they, like all the public sector, will face from 2011-12.
	On Icelandic banks, authorities are uncertain how much they will recover as they prepare their budgets so soon after the failure of those banks. I therefore propose, exceptionally, to make a regulation so that they need not make provision, in their 2009-10 accounts or budgets, for any possible loss on those investments. That will give them time to adjust their medium-term financial plans and time to be clearer about the recovery of their money before they take decisions that will affect their budgets or council tax. We are writing to all authorities today, and I will issue a draft regulation for consultation shortly.
	On council tax, I made it clear to the House last year that the Government expected the average council tax increase in 2008-09 to be substantially below 5 per cent. The average actual increase was 3.9 per cent., which was the lowest increase for 14 years and the second lowest increase ever. We also kept our promise to deal with excessive increases by taking capping action against eight authorities. In continuing this, we are today designating the police authorities of Cheshire, Leicestershire and Warwickshire, and proposing maximum budget requirements that will limit their council tax increases to about 3 per cent. next year. For 2009-10, the Government again expect the average council tax increase in England to be substantially below 5 per cent., and we will not hesitate to use our capping powers, as necessary, to protect council tax payers from excessive increases.
	In conclusion, I confirm the second year of the three-year finance settlement. I recognise that it is tight, but it is fair and affordable, and it continues our increasing investment in council services. To help, during these tough economic times, our settlement maintains the certainty, flexibility and equity that local government says it wants from central Government. We know that councils are capable of innovating, of managing change and of improving efficiency. The challenge on all those fronts is set to become still greater, and councils must demonstrate that they are equal to that task. I commend this statement to the House.

Bob Neill: I thank the Minister for the statement, and for his customary courtesy in giving me an advance copy. That said, the reality is that bad news, however courteously delivered, remains bad news, and this is a thoroughly bad settlement for council tax payers in this country.
	Would the Minister care to confirm that he has introduced his own council tax bombshell for taxpayers in the United Kingdom? By taking together the figures in his statement with the small print in the pre-Budget report, we can see that council tax receipts are predicted to rise by 1.1 billion next year, an increase of about 4.5 per cent. Will he confirm that that would mean an increase of about 62 a year in the council tax bills of hard-working families, and that it would take the average band D bill to more than 120 a month from April, destroying much of the so-called spending power allegedly put back by the pre-Budget report? Will he also confirm that that means that, by 2010, council tax will have risen by 109 per cent. under Labour? That is the legacy of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr. Brown) as Chancellor and Prime Minister.
	Page 203 of the pre-Budget report states that there will be council tax increases in the subsequent years of 6 per cent. and 4.7 per cent., representing a further 10.7 per cent. increase over two years, yet the same pre-Budget report postulates that retail prices index inflation will fall into the negative, resulting in a deflationary figure of 2.25 per cent. That is an enormous whammy for council tax payers in real terms.
	The Minister also referred to the Icelandic banks. Have the Government made any assessment of the likely loss of investment income to local authorities as a result of the Icelandic difficulties? So far, none has been forthcoming. I note that he intends to assist local authorities with deferment measures, but will there be any other support for them?
	The action team that we were promised has turned out to involve two men, without a dog, being sent in to each local authority. What further assistance is to be given to aid the recovery of debt? Perhaps the Minister and I are in agreement that to sayas one Liberal Democrat MEP has donethat Iceland should sue Britain is not helpful. I shall try to be more constructive, and ask what assistance will be given to those authorities, bearing in mind that they have to consult on their draft budgets in December and January and therefore have an urgent need for a degree of certainty.
	Will the Minister also consider the position on business rates? I hear what he has said about ports, but, thanks to decisions made when the Prime Minister was Chancellor, the ports industry now faces a set of back-dated tax bills amounting to some 33 million, at a time when the industry is tipping into recession. Nothing that has been done, either on Monday or today, will do anything to address the requirement for those businesses to account for the whole of their liability in this year's accounts. Any degree of deferment will not assist them; it will tip them into insolvency. In some cases, their liability is more than their turnover. Can we please have some serious action on this, rather than what one port operator has described as the Government washing their hands of a sector that employs nearly 100,000 people?
	May I also ask the Minister to consider whether the U-turn on the Prime Minister's policy on empty business ratesintroduced when he was Chancellorwill be met with any compensating funding for local authorities, or are they to bear the shortfall? That policy should never have been introduced in the first place, but what is the likely cost to local authorities of that change?
	On the long-term future, will the Minister confirm that the Government continue to apply an unrealistic inflation rate to local authority settlements? Has he spoken to any highway authorities about the renewal of highway maintenance contracts which, with fuel and other costs, often carry double-digit increases? What is to be done about the cost to local authorities of the increase in national insurance employers' contributions? Is that to be borne by the council tax payer or by cuts in services, bearing in mind that figures extrapolated from the pre-Budget report would suggest that the total cost to local authorities could be 305 million?
	All in all, is it not time that the Minister conceded that his life in a former post at the Treasury has at least meant that he is consistent? Just as the Treasury clobbered taxpayers with its tax bombshell on Monday, he has clobbered council tax payers with a council tax bombshell today.

John Healey: I have indeed been consistent. I have been part of a Government who, in each and every year since we came to power in 1997, have given above-inflation increases to local government. This is not a bad settlement: there is again an increase this year as part of a three-year settlement totalling 8.9 billion that is available for councils to improve services and control council tax costs, as they have done in previous years under this Labour Government.
	The hon. Gentleman quotes figures for council tax increases. Let me be clear: that is not what the pre-Budget report says and he is wrong. Like every previous year, the Treasury publishes forecasts for the purposes of financial accounting. The council tax is determined by local authorities, not by the Government andlike previous yearsin each of the last three years, the figure published in the pre-Budget report or the Budget for accounting purposes has been a good deal higher than the actual average council tax increase. I expect that to be the case again for next year, and I repeat that we will not hesitate to use our capping powers to protect council tax payers if they are affected by excessive increases.
	The hon. Gentleman asked me to provide an assessment of the losses related to Icelandic banks, but we do not have the information, either from the banks or the administrators, to be able to do that. Nor do local authorities, which is why I propose to make the regulation as I informed the House a moment ago. In terms of other help, we have sent in financial experts to work with more than a dozen of the councils that thought that they might face severe short-term difficulties. We have been able to establish with them that they do not, and that there is no threat to staff salaries or to services. We have said that if they want further continuing expert help, we will fund that, and a couple of the authorities are taking up that offer. We have also said that if the case warrants it, we will consider capitalisation requests. We have made that clear to one authority particularly, and we expect to hear from it shortly.
	The hon. Gentleman invites me to consider his remarks and the position of businesses in ports. I have to tell him that over the last three weeks I have considered very little else, not least because several of my right hon. and hon. Friends have also forcefully advocated those concerns. I fully understand those concerns and I am determined that the Government should respond to them. They are basically twofold. The businesses do not like the backdated liability for taxto the beginning of this valuation periodbut it is tax that they are legally due to pay. They saidand this was their first problemthat it would hit their cash flow. I will provide detail for the regulation shortly, but what was announced in the PBR will allow them to spread over eight years the payments of the back-tax that is due.
	The second thing that they wanted was more rapid action and response. They felt, reasonably, that they had not got that from the Valuation Office Agency, but the special fast-track system now in place will deal with businesses that want to challenge or appeal against their valuation. However, I remind the hon. Member for Bromley and Chislehurst (Robert Neill) that these are businesses like any other: they have an established tax liability that cannot be removed other than by primary legislation that I am not prepared to propose to the House. Indeed, some of them should have been paying the tax for many years before 2005.
	Finally, the hon. Gentleman talks about a council tax bombshell, but the real council tax bombshell would hit people in this country if we got a Conservative Government. They would go back to what they did beforecutting and not increasing support for local government, and putting more pressure on councils, council services and council tax.

Phyllis Starkey: To return to the matter of local authority deposits in Icelandic banks, will the Minister confirm that none of the authorities with which his Department has been in contact is experiencing short-term problems with cash flows that will affect services? Will he also confirm that the Government are continuing to work with local authorities to ensure that they have the best possible chance of recovering their deposits from the Icelandic banks?
	May I also commend the way that the Department has worked with local authorities and the Local Government Association? It has responded to individual councils and recognised their autonomy in the proper partnership way that central Government should work with local government.

John Healey: I thank my hon. Friend for her questions. We have been working closely with individual councils that told us and the LGA that they might face severe short-term difficulties. We have been able to establish, to their satisfaction and our own, that none of them does, but continuing help that we will fund is nevertheless available to any council that needs it. The Government have also been working hard internationally to try and help all depositors, including local councils, to get their money back from the Icelandic banks.
	The IMF recently agreed a loan to Iceland of 2.1 billion, and one of the conditions is that the Icelandic Government will treat all depositors fairly when the two banks based in Iceland are wound up. That will include deposits from local authorities that may be at risk. We will continue to work with the administrators, where necessary, and with the LGA, because we are determined to ensure that no councils that may be feeling the pressure of having deposits tied up in failed Icelandic banks will be left on their own without the support that they need.

Julia Goldsworthy: May I thank the Minister for advance sight of the statement? Much of it is as we expected, not least because this is year two of the three-year settlement announced last year, but council tax payers may be in for a nasty shock.
	A year ago, the Minister hailed the settlement as delivering real-terms increases, but councils knew that it was very tight. Inflation, which stands at more than 4 per cent., has made things even tighter. Will the Minister come clean about the fact that any real-terms increases have disappeared and that many councils will be facing real-terms funding cuts as a result of this year's settlement? Is it not correct that that will mean either council tax increases or cuts in services for local council tax payers?
	The hon. Member for Bromley and Chislehurst (Robert Neill) highlighted the fact that the PBR figures are based on an assumption of council tax increases of 4.5 per cent. Since council tax is paid from household income net of income tax, such an increase will hit people hard in their pocketsalthough the hon. Gentleman did not say what the Conservatives would do as an alternative. Does not that go against everything that the Chancellor claimed that he was trying to achieve in his PBR on Monday?
	If the Government were serious about delivering tax changes that would make a real difference to disposable income, we should have expected some significant changes to how local government is funded, as well as a fundamental rebalancing of the income tax system. Instead, value added tax is to be tweaked now, and there have been promises of tax increases in the future. That is combined with a local government finance settlement based on assumptions that are a world away from the tumult that we have seen since the Minister's statement last year.
	The great uncertainty already faced by many councils will have been added to by their exposure to the collapse of Icelandic banks. I welcome the announcement that the Minister made on that issuein the nick of time, as councils begin the process of finalising their budgets. However, will he clarify whether this is a one-year reprieve, or will he be giving councils the power to capitalise, so that they can spread any losses over a number of years rather than having to deal with the problem in one hit?
	On population, the Minister last year announced a review of migration statistics: will he update the House on that, as there are no details in today's statement? On efficiency, councils will need to make savings, and they have demonstrated already that they have a better track record than the Government. However, will the Minister explain why he is expecting local councils to achieve a 50 per cent. increase in efficiency next year, when we expect the country to be in recession, while at the same time the Government are indulging in a splurge worth 15 billion and families will be queuing out of the door for housing help?
	Today's statement is a tacit admission that councils will be facing cuts and further increases in council tax. If the PBR was intended to tempt shoppers into spending before Christmas, this settlement will leave council tax payers with a stonking new year hangover.

John Healey: The hon. Lady is right that councils have a good track record in making efficiency savings, especially over the past three or four years of the previous spending review period. For this current year, they are being allowed to carry over about 1 billion of those savings, and that is the right thing to do. However, as I said in my statement, we are expecting at least the same level of efficiency from local government that we expect from all parts of national Government and the public sector.
	On migration statistics, the hon. Lady may know that the national statistician is leading a task force drawn from senior people in all Departments and local government. The task force is looking to improve the use of administrative data so as to render migration and population statistics more accurate. It also wants to improve projections and to find a better way to track people who enter, leave and move around our country. That will provide a better basis for making policy and funding decisions across a number of areas of Government in the future.
	The hon. Lady also asked about the effect of the settlement on councils with deposits in Iceland. In practice, it means that they will not need to account for any impairment in their budgets until the year 2010-11. By that time, they should be clearor certainly clearerabout the level of loss that they have to provide for.
	Finally, the hon. Lady is right that this is a steady as she goes financial settlement. She said that there were no surprises but, given that this is the second year of a three-year settlement, that should be no surprise to the House. She upbraided me for not coming up with alternatives, but her only alternative to the funding pressures that all parts of the public sector, especially local government, inevitably face at this time is the removal of the council tax and the introduction of a local income tax. That would place enormous pressure on working families and local businesses at the very time in this economic downturn when they could least afford it.

Lindsay Hoyle: I thank my right hon. Friend for his statement, but will he assist a little more on the Icelandic issue? My local authority, Chorley borough council, invested 2 million in Iceland on 9 September. That is of course the main problem, but another problem is the ongoing revenue and interest that will be lost. Chorley is a small district authority, but what can he do to help it get that money back? Will he reassure the people of Chorley that the borough council was not acting on his or the Government's advice when it decided to invest the money?

John Healey: It is rather curious and unusual to hear my hon. Friend ask for support for Chorley council. However, he is right that it should take responsibility and be able to account for its investment decisions, including its decision to invest in Icelandic banks. We have been working with Chorley council already and, if it wishes us to offer help, we are committed to giving it. That help would include providing financial experts from within the field of local government who would help the council sort out how to manage the financial pressures in the medium term. If the council believes that it has a good case for capitalisation, he may like to tell it that I am prepared to consider that.

David Curry: The Minister is an intelligent and reasonable man, so will he look into a genuine problem that many councils face because of the way in which the costs of the free bus pass for elderly and disabled people have differed in their impact from the assumptions made when the grant was distributed? Some councils face costs of literally millions of pounds this financial year, and more in the next financial year, over and above the value of the grant. As they cannot recoup that money from the council tax, their only chance of recouping it will be through cutting other services, including precious things like recycling. Will he discuss with the Department for Transport, which is a lead authority on the issue, the need for an urgent redistribution of the grant in the light of actual patterns of bus use, rather than anticipated and predicted patterns?

John Healey: The right hon. Gentleman probably understands local government finance and finance pressures as well as any Member of this House, as he served with distinction in the Department responsible under the previous Administration. Of course assumptions were made at the beginning of the three-year period. There was a decision, on which we consulted, about those assumptions. There was a decision, on which we consulted, to fix on a three-year settlement, because of the advantages of certainty and stability. There was a decision, on which we consulteda decision that local government pressed us to takethat we would pay the extra money, which is 212 million this year and 217 million next year, to support the additional concession for elderly people. We decided to pay that by special grant, whereas the rest of the extra money going to local authorities will be paid through the formula grant. We are still confident that there is, in aggregate, plenty of extra money from the Government in the system to support the costs.
	The right hon. Gentleman asked me about the Department for Transport. I believe that my right hon. Friend the Secretary of State for Transport will shortly begin a consultation on possible changes to how the concessionary travel scheme is administered. One change that I think that he will be interested in, as I know his North Yorkshire county council well, is the proposition that the scheme may be better administered at county level to enable any inconsistencies apparent in the system to be more easily managed and ironed out.

Adrian Bailey: I welcome my right hon. Friend's statement, not least because of the consistency offered by the three-year approach, which is very much welcomed by local authorities. As the finance chair of a major metropolitan authority in the 1990s, I remember well the shock that we had, year on year, as the Conservative Government reduced revenue support in real terms. I also remember the consequent slashes in public services and the council tax rises. However, may I draw his attention to the announcement in the pre-Budget report on Monday of local government's role in bringing forward capital projects? That is likely to have an impact on the future revenue budgets of major local authorities. Will he reassure me that any such impact will be examined closely, and will be taken into account in any future financial assessments made for local authorities?

John Healey: I can indeed give my hon. Friend the assurance that we are looking into the significant bringing forward of capital investment that was announced. Some of that investment will be in schools, housing, and regeneration, and therefore some of it will rightly be routed through local government. We are looking at precisely how we can get the best out of that decision. We will publish details of our proposals for doing so, and of the impact on local authorities, as soon as we can, and as soon as those details are available, I will make sure that my hon. Friend gets a copy.

Nicholas Winterton: The Minister will know that my constituency of Macclesfield falls within one of the new unitary authorities, Cheshire East council. Can he advise me and the House on how the new authority will assess the 3 per cent. annual efficiency improvements that the Government expect from councils? Does he really believe that the level of inflation encountered by local government is the level of inflation to which he referred in his statement? Has he taken fully into account the additional responsibilities that central Government impose on local government, year by year?

John Healey: The pressures of inflation are not, of course, all one-way. The price of oil has been falling fast, and the price of energy is likely to follow shortly. The price of fuel at the pumps is also coming down. All that will play a part in helping local authorities to manage the period ahead. However, the nine new unitary councils across the country tell me that the move to unitary status gives them more scope for the sort of efficiency savings that they might look to make. They can also look to improve services in the short term. As the hon. Gentleman knows, I am keen to support those councils in that work. The leaders of all nine new unitary authorities have a tough task in making sure that the councils are ready and will be up and running from 1 April, but we will give them whatever support is needed.

Barry Gardiner: I welcome my right hon. Friend's decision to require councils to set out standard efficiency figures on council tax bills; that is a welcome innovation. Will he tell me whether that would capture a situation in which a council failed to renew a contract for weed-killing in the area, as Conservative and Liberal Democrat-controlled Brent council did this year? Costs have thereby been kept down, but at real expense and inconvenience to the public, who have seen weeds growing to 18 inches through their pavements and on streets.

John Healey: As the House would expect, I prepared quite well for this statement, but I had not covered the issue of weed-killing in Brent. [Hon. Members: Shame!] However, I can make two points to my hon. Friend. First, if his council this year achieves the 3 per cent. efficiency savings that we expect of all the public sector, it will be equivalent to more than 80 off council tax bills for his constituents and for every resident of Brent. Secondlythis may assist him, because he is a man with an eye for detailI will send him a copy of the guidance that we issue that sets out precisely how councils should and should not account for the efficiency savings that they make. It is clear that straightforward cuts in services should not, and do not, count towards the efficiency savings that we look to them to make.

Alistair Burt: I am slightly puzzled about the reference in the Minister's statement to rate-capping powers for the new unitary authorities. When councils responded to the Government's generous invitation to apply for unitary status, was it not all supposed to be done on a cost-neutral basis? Indeed, the talk in Bedfordshireand, I am sure, in other placesis of the reduction of bills as a result of going unitary. Why would the Minister contemplate rate-capping, unless it is because the pressures on inflation and other costs will bite on council tax payers in the areas concerned, as will be illustrated in the House this afternoon, and the change will not be as cheap as they thought?

John Healey: The simple answer to the hon. Gentleman is that I want to be prepared for every situation, no matter how unlikely I believe it to be. I have every confidence in the two new unitaries in Bedfordshire. They are well led, and have some good senior officers in place, whom I have met. In both cases, I expect those concerned to be able to set up the new unitary and to improve services for local people. I also expect them to make the financial savings that were part and parcel of the proposal on the basis of which Parliament gave them the go-ahead. Everything that they tell me suggests that they will do so, but I want to be prepared for any eventuality, as this House would expect me to be. However, I do not necessarily expect the new powers to be used.

John Maples: The VAT reduction of 2.5 per cent. is worth about 200 a year for somebody on 20,000 a year. A 5 per cent. increase in council tax will absorb about a third of that, so I urge the Minister to use the capping powers that he threatened to use, and to do so in a draconian way, hopefully keeping council tax increases below 3 per cent., rather than below 5 per cent. He specifically mentioned designating Warwickshire police authority, which last year raised its precept by nearly 13 per cent. It was notified at the time that it would be expected to implement a much lower increase this year. The Minister mentioned an increase of about 3 per cent. May I urge him to make it much lower than that? Given last year's 13 per cent. increase, getting back to an average of 3 or 4 per cent. would require much lower increases in the next two or three years. I hope that he will make it clear to the authority that he expects something like a 0 per cent. increase this year.

John Healey: I take those as representations from the hon. Gentleman, and I confirm that the three police authorities that I mentioned will have 21 days in which to decide whether they wish to challenge the Government's decision. If they decide to do so, any representations will be considered very carefully. I made the announcement today because we propose to follow the action we set out not just last year but this year to deal with what he rightly says was an excessive rise last year in the police authority precept. However, we are concerned that we should ensure that the police authority can manage, so I see no reason to move away from the intention of the announcement that I made last year on how we proposed to use our capping powers in relation to his police authority in Warwickshire.

Mike Hancock: When will the Minister publish his evidence to support the requirement for local government to save a further 50 per cent. in efficiency savings? He must have had some pretty good evidence that that could be delivered. I should also be interested to know what he means by substantially below 5 per cent. Does he have a figure for the rise in the capping level? May I echo the sentiments of the right hon. Member for Skipton and Ripon (Mr. Curry), who raised the issue of concessionary bus fares, because undoubtedly some local authorities will make cuts in services to meet the obligation on concessionary fares that the Government placed on them? That is not right, and the last thing that we want is consultation. What local government needs is a remedy and an answer to the Government's promise fully to fund that policy.

John Healey: The Government have fully funded the extra entitlement for nearly 11 million older people to ride anywhere they choose free on local buses. That has been a liberation for many people, and I am disappointed that the hon. Gentleman should adopt that fairly negative tone in the House.  [ Interruption. ] He heard what I said about the proposals for the Department for Transport to look at how the scheme could be administered better in future. I hope that he will encourage his council in Portsmouth to contribute, just as I hope that all hon. Members with an interest in the matter will encourage their councils.

Brian Binley: The Minister said that every authority will have an increase, yet he also said that in 2009-10 the average increase will be 2.8 per cent., and that in 2010-11 it will be 2.6 per cent. He knows that the Government have acted shamelessly on the distribution underneath that national average, and that money has been shoved mainly to Labour seats in the north and in Scotland at great cost to my county of Northamptonshire. As a result, we have cut deeply into local government expenditure for four years, so will he admit that local government inflation is running at more than 4 per cent., and has done so for four years? Will he tell me the figure for those two years for Northamptonshire, so that people can know exactly what he is proposing and exactly how much the cut is?

John Healey: I can indeed; this year, Northamptonshire received a 4.4 per cent. increase in core grant. Next year, it will receive a 3.71 per cent. increase, and it will receive a total increase in Government funding of more than 25 million extra. Northamptonshire is receiving those increasesthis is why some of the largest increases in the country are in counties in the south and south-west of Englandbecause we have given priority in this three-year settlement to funding those areas with social care and waste disposal responsibilities, which were the two particular cost pressures that the Local Government Association and local government itself said were most important and most pressing.

Anne Main: As the Minister knows, Hertfordshire is an excellent-rated authority. Unfortunately, it is also a floor authority, and we do extremely badly under the Government's funding formula grant. Will the Minister consider bringing forward the review of that grant from 2010 to 2009 to help us out?

John Healey: I will not, but I will tell the hon. Lady that next year, her county will receive more than 39 million extra compared with this year under the settlement. She complained about the floors that we introduced. However, without floors, as my hon. Friend the Member for West Bromwich, West (Mr. Bailey) said, the experience of councils was not just that they were at the mercy of decisions made by the Tory Government to cut council funding, but that wild swings made things even more difficult to cope with. That is not the case any more: every authority in every region will receive an increase in the core grant in each year of the three-year settlement.

Peter Bottomley: West Sussex and Worthing get the lowest increasesone day, I hope to be in the House to hear that that is no longer the case. May I ask the Minister why the word plain has been left out of the updated version of the plain English guide of 1998? Is it because it is no more complicated than it was before? Just to complicate the issue, may I move on to the un-plain guide, and ask why he used four, five or even six different log numbers when adjusting the police top-up? Is that really necessarydo the sums justify using five significant places in six different ways to top up police grants?

John Healey: I think that plain for local government financing is a three-year settlement; it is predictability; and it is knowing from last year what local councils and police authorities can expect in core funding. My hon. Friend the Minister for Security, Counter-Terrorism, Crime and Policing has undertaken that, towards the end of the spending review period, the Government will look again, with the police authorities, at the formula for funding policing and police authorities in future. I encourage the hon. Gentleman to make a contribution when that review begins.

Graham Brady: What account has the Minister taken of the additional costs that would fall on Greater Manchester local authorities in the event of a vote for the introduction of the congestion charging scheme, which would be accompanied by 1.2 billion of borrowing by Manchester authorities now, with repayment starting immediately and continuing into the future, regardless of whether a charge introduced in five years' time pays for the cost or not?

John Healey: One of the advantages of being a champion of localism is that I can reasonably say that those sorts of decisions are rightly made by the local authorities involved. They will be made by the relevant local authorities after they have properly consulted the people of Greater Manchester about their proposals. The Government have made it clear that they will stand by to provide capital support and encouragement to achieve the substantial transport improvements required in that great city for the future.

Anne Milton: Is the Minister aware that Waverley borough council tenants recently presented a petition to No. 10 Downing street, because 49p in every pound that they pay in rent goes to the Government? For Guildford borough council, the figure is 44p in every pound, and most of that money goes to pay the debts of more profligate councils. Is he also aware that Guildford and Waverley will receive one of the lowest increases in central Government grant? Guildford is down 300,000 on the concessionary bus travel scheme, yet we are one of the biggest contributors to the Treasury's coffers. Starved of money for infrastructure, councils are left with very little choice but to raise council tax or cut services.

John Healey: Guildford and Waverley councils both benefit from the protection of the floor system that we have introduced. Without those floors, they would receive considerably less, because we have a formula that we apply across the country that tries to balance the needs of local areas with their ability to pay. May I simply tell the hon. Lady that I would invite and welcome written representations from her local authorities on the financial settlement, but unlike last year, I do not plan to meet individual authorities. I am confirming the second year of a three-year settlement, but as is right and proper, I will meet any parliamentary colleagues who approach me for such meetings. My diary secretary may protest, but if I properly can I am anxious to reduce the number of meetings from the 42 that I had last year given that this is, as the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said, a settlement announcement that contains no surprises.

Mark Hunter: There is no doubt that metropolitan authorities have lost out continuously in recent years as a result of the funding formula, and some metropolitan authorities lose out more significantly than others. In my constituency, which is in the Stockport metropolitan borough council area, a high school that is only a mile away from a similar high school in Manchester receives approximately 200 a year per pupil less funding. Will the Minister say anything at all about whether the Government are determined to address the fundamental inequalities in the funding system?

John Healey: The hon. Gentleman's contribution is almost a year too late. When I announced the changes in the formula in the three-year settlement, we established a system that provides urban metropolitan authorities with the funding that they need. That point has been confirmed by the special interest group of municipal authorities, which is the representative body for his sort of authority. It has said that it welcomes the three-year settlement and the changes that I made to the formula, which make the formula fairer for such authorities.

Greg Hands: Yesterday, Hammersmith and Fulham council announced a 3 per cent. reduction in council tax, for the third year running. The council has also reduced its debt by almost 20 million, producing annual savings on interest rate costs of 1.7 million per annum. Over the same period, the council's services have been upgraded from three stars to four stars by the Audit Commission. Will the Minister come to Hammersmith and Fulham to see how public finances should be run? Will he bring the Chancellor and the Prime Minister with him when he does so?

John Healey: I cannot speak for the Prime Minister or the Chancellor on this occasion, but I will come to Hammersmith and Fulham and visit where the hon. Gentleman wants me to go with his council. However, I will also visit the areas where others tell me about savage cuts to many services and grants that support some of the neediest people in the borough. I look forward to my visit.

Paul Rowen: Local authority services, such as homelessness services, are being affected by the recession. In the PBR on Monday, the Chancellor announced additional resources for the relevant Departments, such as the Department for Work and Pensions. Why has no extra provision been made for local authority services, which are also under severe pressure?

John Healey: I am not sure whether the hon. Gentleman was in the Chamber when I made my statement. I think that he was here to hear me say that I recognise the pressures on local authorities, but that those pressures are just as strong on national Government. The central feature that is helping local councils to manage long-term decisions, address the pressures on their finances at present and prepare for the other side of the downturn is stability in the core grant. The three-year settlement does not include the strings that have been attached in the past, which is what I am reconfirming for the House this afternoon.

John Howell: Will the Minister confirm how many specific grants will be wrapped up in the rate support grant or even changed into permitted borrowing? Is that what he euphemistically means by mainstreaming? If it is, it will have no positive effect on floor authorities such as those in my constituency and the rest of the south-east.

John Healey: What I mean by mainstreaming is precisely what I said earlier. Forty-three specific grants are now paid each month to authorities without any strings attached under the new area-based grant. This afternoon, I have also announced the indicative figures for next year and the year beyond, which councils can use to plan. In total, there are 70 different funding streams from nine different Departments, which, along with my announcements on the formula grant, add to councils' certainty.

Points of Order

Richard Benyon: On a point of order, Mr. Speaker. On 9 October, I tabled a written question for answer on 13 October to the Home Office asking about the absence of Home Office presenting officers defending Home Office decisions at immigration tribunals. I did not receive a reply, so on 19 November I asked a further question seeking a reply to the original question, but I have not received a reply to that. If I were a cynic, I might suggest that the Department was trying to push the matter through to prorogation, so that the question would fall; it may, of course, be just incompetence in the Home Office. I seek your advice on how one can get answers on such important issues, if questions are not answered on the named day or even a month later.

Mr. Speaker: The appropriate Ministers have heard the hon. Gentleman's remarks. My advice is that perseverance is very important, and it is possible to table the same question after state opening.

Simon Hughes: On a point of order, Mr. Speaker. You have granted a debate on the pre-Budget report, which is welcome. Normally at the end of a Budget statement, there is a debate and then we vote on resolutions on tax changes. Obviously, we will not have that opportunity before the House is prorogued. Can I ask for your assistance in making sure that the prayer tabled by my right hon. and hon. Friends, which would allow debate and a vote on VAT changes, comes before the House, so the House can decide whether to implement those changes, which would normally take place after a Budget?

Mr. Speaker: That matter is for business questions, but we are having a debate today. The motion is
	That this House has considered the matter of the Pre-Budget Report,
	and it can be voted on.

Emergency Debate
	  
	Pre-Budget Report

George Osborne: I beg to move,
	That this House has considered the matter of the Pre-Budget Report.
	On behalf of many hon. Members on both sides of the House, I begin by thanking you, Mr. Speaker, for taking the exceptional step of granting this emergency debate. You have protected the interests of Members on both sides of the Chamber who want to hold the Government to account.
	The public would have found it extraordinary if the House of Commons had not properly considered the huge tax measures put forward by the Chancellor on Monday, or indeed the tax measures concealed by the Chancellor on Monday. Those measures are being debated by families across the country who fear their impact, and it is astonishing that the Government did not want them debated in the House of Commons.
	The only explanation is that the Prime Minister is running away from the argument, because he knows that he is losing the argument. This Budget started to unravel from the moment it was delivered. The doubling of the national debt shocked the entire country.  [Interruption.] Labour MPs may not be shocked, but the country is shocked to realise that the Government have taken it to the edge of bankruptcy. Within minutes of the report being published, it became clear that the national insurance rises would, contrary to the Chancellor's claims, hit people on modest incomes. The small print of the Budget book shows that the Chancellor had been less than candid about the stealthy duty rises on alcohol and petrol. Then we discovered the 100 billion black hole in the tax revenues with no explanation of how it will be filled.

Albert Owen: Will the hon. Gentleman give way?

George Osborne: I will give way in a second, but it is not as though Labour Members wanted the debate in the first place. Let me explain what happened to the Budget, and then I will take the hon. Gentleman's intervention.
	The next morning, the OECD undermined the borrowing projections, when it issued growth forecasts for the UK that were different from the Chancellor's and said that Britain would have the worst recession and highest percentage rise in unemployment in the G7. Yesterday lunchtime, the Institute for Fiscal Studies pointed out that the new top rate would raise, in its words, virtually nothing. The Governor of the Bank of England told the Treasury Select Committee yesterday that the Government should be focusing on fixing the banking system. Meanwhile, retailers are up in arms about the huge costs and logistical nightmare imposed by the temporary VAT cut. Last night, the Chancellor U-turned on the proposed hike in whisky duty, which he had announced only 24 hours earlier. Finally, it has been revealed in an official Treasury document signed off by a Treasury Minister that there is a secret tax bombshell to increase VAT to 18.5 per cent.

Albert Owen: The shadow Chancellor has mentioned value added tax and fuel duty on a number of occasions. Is it still his party's policy to have the so-called fair fuel stabiliser, and what would that mean at today's prices for every motorist in this country?

George Osborne: The hon. Gentleman should have paid attention on Monday, because the Chancellor[Hon. Members: Answer!] I am going to answer. The Chancellor introduced a version of the fuel duty stabiliser on Monday.

Angus Robertson: Only two days ago, the UK Labour Government made a proposal that would have amounted to the biggest annual rise in taxation on the Scotch whisky industry in almost four decades. We are about to hearperhapsa clunking U-turn, recognising that that is a reckless and dangerous road to go down. If the Chancellor had the interests of the Scottish economy at heart, why would he have even made that proposal in the first place?

George Osborne: I think that that question was mainly directed at the Chancellor, but let us just say that the U-turn on whisky duty within 24 hours proves that the Scottish interest is well represented in this Government.

Several hon. Members: rose

George Osborne: I give to my hon. Friend the Member for Broxbourne (Mr. Walker).

Charles Walker: Does my hon. Friend not agree that Labour's plans to increase VAT to 18.5 per cent.or perhaps even 19.5 per cent.after the next election will hit hard-working families hardest? Should the Government not be ashamed of themselves?

George Osborne: My hon. Friend is absolutely right. The details are here in the Treasury document that this Government published, and let me assure my hon. Friend that the Government are going to hear about it every single day between now and the next general election.

Several hon. Members: rose

George Osborne: If hon. Members will allow me, I shall make some progress and take some interventions later. I am aware that many Members want to speak in the debate, and that Front-Bench speeches have a time limit. Therefore, I shall proceed.  [Interruption.] Well, I shall take some interventions later if the hon. Member for Weaver Vale (Mr. Hall) can think of some better ones.
	Now, let us be clear. We know about the secret plan for VAT; it is totally [Interruption.]

Mr. Speaker: Order. The hon. Gentleman is not going to give way.

Mike Hall: He referred to me.

Mr. Speaker: Order.

George Osborne: It has totally destroyed the public's trust in the Government's motives, confirming what everyone suspectsthat Labour's temporary giveaways now will be dwarfed by permanent tax rises later. Normally, it takes a week or so for the Prime Minister's Budgets to come unstuck; this one has completely fallen apart in just 48 hours.
	Let us start with the debt figures, because I think that the reaction of the country was a sharp

Several hon. Members: rose

George Osborne: I shall give way later.

John Baron: Will my hon. Friend give way?

George Osborne: Yes, I give way.

Hon. Members: Oh!

Mr. Speaker: Order. It is the hon. Gentleman's privilege to give way to who he wants to give way to.  [Interruption.] Order.

John Baron: I thank my hon. Friend for giving way, but does he agree that one of the most alarming aspects of the pre-Budget report is that the tax increases that have been mentioned so far will raise only a small fraction for the black hole that has been created in our public finances, and that many more tax increases are coming down the line?

George Osborne: My hon. Friend is absolutely right. A 100 billion black hole has been created by fiddling the growth figures between the Budget earlier this year and the pre-Budget report now. We know that at least part of the Government's plan is to fill that hole with the 18.5 per cent. VAT rate.

Chris Ruane: rose

Hugh Bayley: rose

George Osborne: I shall give way to the hon. Member for City of York (Hugh Bayley) and then proceed.

Hugh Bayley: The hon. Gentleman seems to have forgotten that the national debt doubled when John Major was in power, and that the Labour party brought it down. In the early 1990s, net borrowing was at 7.4 per cent., 7.7 per cent. and 6.2 per cent. Last year, under Labour, it was at 2.6 per cent., and the Library brief shows that net borrowing will not rise to anywhere near as high as it was under the Conservatives in the early '90s, so what is he complaining about?

George Osborne: I am glad that I took that intervention, because it enables me to say that the budget deficit next year will be the highest on recordhigher than when Denis Healey went to the International Monetary Fundand the national debt, at 58 per cent., is the highest on record. Let me remind the hon. Gentleman that this Government inherited a golden economic legacy from the previous Conservative Government; but this Government are bequeathing to their successors a complete basket case of an economy.
	The debt figures are truly shocking, as the hon. Gentleman has just reminded us: the national debt is set to double to 1 trillion, and there is that record 8 per cent. deficit. We used to think of Britain as a low-tax, low-debt economy that was one of the most successful in the world, but now we must get used to seeing Britain as the rest of the world does: as a high-tax, high-debt country that cannot get a grip on its public finances.
	Let us turn to table B10 on page 198.  [Interruption.] It is probably not in the Whips' handout, but if Government Members were to read the report, they would see that for the first time in living memory the Treasury forecast does not even try to pretend that the current budget will come back into surplus in the medium term. The Chancellor's assertion on Monday that it was all okay, because, by
	2015-16, we will again be borrowing only to invest,[ Official Report, 24 November 2008; Vol. 483, c. 493.]
	was greeted with total derision in the Chamber. He was 100 per cent. wrong about the borrowing forecasts that he made just eight months ago, and now he wants us to take him seriously when he gives us borrowing forecasts for seven years' time. That is not in the next Parliament but in the Parliament after next. They are ridiculous, fantasy figures from a Government who have completely lost the ability to manage taxpayers' money and control public expenditure.

Nicholas Soames: Does my hon. Friend agree that when the Prime Minister was still walking out with Prudence, he was right when he said that you cannot spend your way out of recession?

George Osborne: For once, the Prime Minister was right. He told the Labour party conference that in his first speech as Chancellor, and, indeed, he told the Labour party in 2000 that
	tax cuts before the election lead to...rises just after.
	That is exactly what he is planning: temporary tax giveaways and lifetime rises in tax afterwards.

Several hon. Members: rose

George Osborne: I shall make some progress and then give way to the hon. Member for Wolverhampton, South-West (Rob Marris).

Chris Ruane: What about me? Just 'cos I'm not rich!

George Osborne: The hon. Gentleman more than makes up for it by being too voluble at Prime Minister's Question Time.
	The growth forecasts that the Chancellor has produced are more optimistic than the Bank of England's, more optimistic than the IMF's and more optimistic than the OECD forecasts that were published yesterday. The OECD said:
	The downturn is expected to be severe in economies most vulnerable to the financial crisis or to sharp house price falls. These include Hungary, Iceland, Ireland, Luxembourg...Turkey and the UK.
	That is not exactly great company for a country that used to be the envy of Europe. If the OECD's growth forecasts are right, that will automatically add 10 billion to the Government's borrowing forecast in 2010 alone.

Several hon. Members: rose

George Osborne: I shall give way to the hon. Member for Wolverhampton, South-West.

Rob Marris: I am grateful. As the hon. Gentleman knows, I always relish a good debate about finance matters. His party's position seems to be that the UK economy has problems, and that those problems were caused by the Prime Minister; the hon. Gentleman disagrees with Labour policies to address those problems; and after the problems are sorted out the Tories hope to be in government and to cut taxes. What would his party do differently to address those economic problems? Is he, like the rest of the country, relying on our Prime Minister, as I am, to sort out the economic problems?

George Osborne: It is going to be the next Conservative Government who sort out the economic mess. Now [Interruption.]

Mr. Speaker: Order. May I appeal for calm? It is not a good thing, shouting across the Chamber at the top of our voices. Do remember that there are people out in the country who have difficulties and want to hear the case that is being put before the House.

George Osborne: Thank you very much, Mr. Speaker.
	Let me turn to the fiscal rules, which were supposed to safeguard prudence and prevent all this from happening. Even the Chancellor struggled to keep a straight face when he told the House on Monday that he was replacing the fiscal rules with a new temporary operating ruleno rules, no framework, no independent oversight of the kind that our office for budget responsibility would provide. As the chief European economist of a major investment bank put it today:
	The UK has no serious medium-term fiscal framework: the fiscal rules have been abandoned, with nothing to take their place.
	Yesterday, the Institute for Fiscal Studies predicted that if the Government had persevered with the golden rule, they would now be on course to miss it by a mere 296 billion. The bond markets have passed their own verdict on the Chancellor's new temporary operating rule, through the credit default swaps on British Government debtthe cost of insuring someone against the consequences of the British Government's failing to honour their debts. The cost used to be about the same as that of insuring German Government debt, but it is now almost three times as high. Indeed, the markets today take the view that holding the debt of the British Government is riskier than holding the debt of British Petroleum.

David Blunkett: I am grateful to the hon. Gentleman. In view of what he has just said about the fiscal rules and borrowing, is he seriously telling the House and the country that the problems of America, Europe and Asia are down to the changes that have taken place in Britain over recent months? Has he completely lost his marbles, or does he really believe his own rhetoricthat changes in our economy have been responsible for the financial crisis across the world?

George Osborne: I am saying that the Government did not fix the roof when the sun was shining. I am saying that we entered this recession with the worst budget deficit and the highest levels of personal debt in the developed world. I am saying that our housing boom was double that of America, and that that is why independent groups such as the International Monetary Fund say that we will have the worst recession of any developed economy. I know that the right hon. Member for Sheffield, Brightside (Mr. Blunkett) wants to get back into the Cabinet, having resigned from it twiceindeed, that is the best way to get into the Prime Minister's current Cabinetbut the truth is that I have listed what the Government of whom he was a part have done to the economy in the past 10 years.
	It is not just the appalling debt figures

Oliver Heald: Will my hon. Friend give way?

George Osborne: I shall give way to my hon. Friend and then make some progress.

Oliver Heald: Does my hon. Friend agree that the great British public are thinking that the Government have maxed out the national credit card, and nowinstead of doing something sensible, such as trying to pay off the debtare taking out another enormous loan? Is it not the case that Britain is doing that, but not America?

George Osborne: My hon. Friend is absolutely right. The Government have borrowed and borrowed on the national credit card34,000 for every single family represented by Members in this House. That is a complete disgrace.

Tom Levitt: rose

Gordon Banks: rose

Dari Taylor: rose

George Osborne: I am going to make some progress [Interruption.] I have taken a lot of interventions; we shall see whether the Chancellor takes anything like as many.
	I turn to the tax changes in the Budget. First, there are the VAT changeslet me start with the temporary VAT reduction, before coming to the permanent VAT rise. The Government do not seem to realise that the stimulating effect of a temporary reduction when prices in shops are already falling is more than outweighed by the cost of a permanent rise in taxes on the incomes of those whom they expect to go shopping. This is what the senior tax partner at Grant Thornton said after the Chancellor spoke on Monday:
	It's the wrong time to cut VAT, as it's an inefficient use of taxpayers' money when you have a trade deficit. And it's an odd thing to do when inflation is falling and some fear we are heading for deflation.
	[ Interruption.] Labour Members do not like what the senior tax partner at Grant Thornton says. How about this, from President Sarkozy of France? He asked yesterday why
	Should we use up our available room for manoeuvre on reducing prices when prices are already falling?
	The German Chancellor has also ruled out a temporary reduction in VAT [Interruption.] I am being asked whether we will vote against it, but the Government are not giving anyone a chance to vote on the reduction before it comes into force on Monday. It is only because we called for an emergency debate that we are even discussing it in the House of Commons.
	Far from rushing to support the move, retailers have been quick to point out the administrative nightmare of re-ticketing prices, reprinting catalogues and price lists and reprogramming cash tills, which will cost them tens of millions of pounds [Interruption.] They talk about prices, and that brings me to the permanent VAT rise

Several hon. Members: rose

Mr. Speaker: Order. The hon. Gentleman is not giving way.

George Osborne: We heard the exchanges at Prime Minister's questions; perhaps the Chancellor could answer what the Prime Minister refused to answer when he spoke from the Dispatch Box. First, why did one of his Ministersthe Financial Secretary, who is over theresign off on the order

Stephen Timms: indicated dissent.

George Osborne: The right hon. Gentleman shakes his head, but his name is on the document:
	Signed by the responsible Minister:
	Stephen Timms...24th November 2008.
	The document clearly states that the standard rate, having returned to 17.5 per cent. on 1 January 2010, will subsequently increase to 18.5 per cent. in 2011-12. Why did the Minister sign off that document, or does he not read what he signs? He can intervene on me now if he likes.
	The second thing that I would like the Chancellor to confirm or deny is that the Government were considering further increases in VATspecifically, a rise to a 20 per cent. rate of VAT in 2012. We will put in our freedom of information request, but I would be most grateful if the Chancellor confirmed that rise as well.

Several hon. Members: rose

George Osborne: I give way to my hon. Friend the Member for Ludlow (Mr. Dunne).

Philip Dunne: On the subject of the so-called VAT reduction, is my hon. Friend aware that, far from reducing the VAT bills of small retailers and businesses with turnovers of less than 200,000businesses that pay under the flat-rate VAT schemethe Government are actually increasing those bills, by not reflecting the adjustment correctly to take into account the reduced VAT input tax? The margins of many thousands of businesses will be reduced as a result of this so-called tax cut.

George Osborne: My hon. Friend makes an extremely powerful point.

Several hon. Members: rose

George Osborne: I will make more progress, because many Members want to speak. Unfortunately, we have only three hours to debate this issue, although we would be happy to debate it all afternoon.
	I turn to the national insurance changes. The Chancellor made the claim that only those on incomes of more than 40,000 will be worse off than they are today as a result of the national insurance increase. I am glad to say that the Institute for Fiscal Studies comprehensively demolished that claim yesterday; it said that it was not true. What is true is that anyone earning more than 19,000 will pay more tax than they do now as a result of Monday's Budget.

Anne Milton: Will my hon. Friend give way?

George Osborne: I will make a little progress, if my hon. Friend will allow me.
	The Government tried to distract attention from that tax raid on the incomes and jobs of middle Britain with their top-rate tax changes. I am sure that everybody remembers what the Prime Minister said to the Treasury Committee last year when he was trying to justify the abolition of the 10p rate:
	I believe that over time very few people will want to change this two rate...system of income tax.
	It turns out that one of those very few people was the Prime Minister himself, a year later. He has actually created five rates of income tax. If we include the adverse changes to personal allowances and national insurance, there are now three new higher bands of income tax46.5 per cent., 52.8 per cent., and a new top rate of 59.8 per cent. That is not a simplification of the tax system.

Several hon. Members: rose

George Osborne: I shall make some progress, if hon. Members will allow me. They may want to hear this, because they are concerned about it. It remains the case that more than 500,000 of the lowest-paid people in this country have lost out as a result of the abolition of the 10p tax band, and their loss was not compensated for on Monday. That is the truth. The Government are giving 20 billion in temporary tax giveaways, and taking back 40 billion in permanent tax risesgiveaways for Christmas, tax rises for life. That is not a stimulus, it is a tax bombshell. It will make the recession worse because it will make the recovery more difficult.
	What the Chancellor should have done on Monday was take radical action on monetary policy to get credit flowing again. That is what we have been arguing for weeks. Mervyn King said to the Select Committee yesterday:
	I am in no doubt that the single most pressing challenge to domestic economic policy is to get the banking system...lending in any normal sense. That is more important than anything else at present.
	The CBI says:
	Getting the credit markets working properly is much more important than the fiscal boost.
	The Chancellor told us in October that the purpose of the bank recapitalisation was to restart lending to the real economy. On that test, even he must agree that it has failed. It may have rescued the banks and the bankers, but it has not rescued the economy. The country has lost count of the number of times we have been told that the Government were summoning the banks to a crisis summit, ordering them to lend to small businesses and forcing them to pass on rate cuts. That may have secured newspaper headlines, but it has not helped businesses to get the credit they need. Now is the time for more direct action.

Several hon. Members: rose

George Osborne: I am not giving way at the moment.
	The Government should establish a new state institution that will directly underwrite lending from the banks to British businesses. They should do so for a commercial insurance fee, passed on by the banks, that would fully protect the taxpayer. Businesses want credit and credit insurance. They are prepared to pay a fair price for it, and the problem at the moment is that they cannot get any credit or insurance. That would not increase Government borrowing. Instead, it would be more like the secured guarantees for a fee that the Bank of England has already put in place for inter-bank lending, which we supported. The idea is supported by all the major business organisations. That is the kind of radical policy action that we urge the Government to undertakenot fiddling around with temporary VAT changes, but getting to the heart of the credit crunch and solving Britain's credit problems. That is what would help get the British economy back on track and stop the terrible rise in unemployment now taking place, again, under a Labour Government.
	The Government did not want this debate because they did not want to face the truth. They mistook a housing bubble for stability, they went on a spending spree and called it prudence and they boasted over and over again that they had abolished boom and bust. As a result, they neither saw the boom, nor prepared for the bust. Now, their emergency Budget is unravelling, their secret tax bombshell is revealed and their scorched earth policy is leading this country's economy to ruin. They have run out of money, and the sooner that they are run out of office, the better.

Alistair Darling: I very much welcome the opportunity to debate the pre-Budget report, and having listened to the shadow Chancellor for the last 20 minutes, I wish the debate could go on for several hours because we might find out if the Conservatives have any policies to deal with what is happening to the economy.
	I understand, Mr. Speaker, that you have indicated

Patrick McLoughlin: On a point of order, Mr. Speaker. The Chancellor has just made a very kind offer. Is there any way in which he can implement it to allow the debate to go on for longer? We would welcome that.

Mr. Speaker: This is a three-hour debateend of story.

Alistair Darling: I was about to say, Mr. Speaker, that I normally like to give way to Members as generously as possible, as the House will know, but you have indicated that you want the Front Benchers to keep their remarks to about 20 minutes or so. I will give way, but the House will understand that I will not be able to give way to everyone.
	I should like to start by making two points about VAT. First, the order to implement the VAT reduction was laid on Monday. It is, of course, open to Members to pray against it, as the Liberal Democrats have done. If they want to vote against the reduction, that is a decision for them, and it is open for others to do so as well. As they will be aware, it is perfectly possible for the House to debate the matters.

Robert Smith: Will the Chancellor give way?

Simon Hughes: Will the Chancellor give way?

Alistair Darling: No, not just now.
	The second point I want to make relates to the rate of VAT. The shadow Chancellor asked me a question about

Graham Stuart: On a point of order, Mr. Speaker. The Chancellor has just suggested that we have an opportunity to vote on this issue. Could the Speaker confirm that that is the case, and tell us when that will happen?

Mr. Speaker: It is a matter for debate. The hon. Gentleman should listen to the Chancellor and see what he can pick up.

Alistair Darling: I am sorry that Opposition Members seem more intent on disrupting what I have got to say than taking part in a serious debate.

Several hon. Members: rose

Alistair Darling: I will give way to hon. Members on both sides of the House, but first I should like to address the important matter of VAT. The shadow Chancellor asked me to address a particular question about the impact assessment that referred to a higher rate of VAT, which was lodged on the website of Her Majesty's Revenue and Customs, and which has been the subject of a lot of newspaper reports. I want to deal with that, head on.
	First, as the Prime Minister said earlier at Prime Minister's questions, in the run-up to the pre-Budget report, I consideredas any Chancellor woulda large number of options about just about every aspect of tax and spending, as the House would expect. As I had to raise money in order to ensure that our borrowing is reduced in the medium term, I concluded that the best and fairest way to do it would be to increase national insurance contributions by 0.5 per cent., as I announced on Monday. I also said that while VAT would come down to 15 per cent., it would return to its 17.5 per cent. rate at the end of 2009. That is the Government's position, and that remains the Government's position.
	When I saw press reports this morning that an impact assessment containing a reference to 18.5 per cent. of VAT had been put on a website and been signed by my right hon. Friend the Financial Secretary, I asked the permanent secretary at the Treasury to find out what had happened, as the House would expect. What I found was this: the Financial Secretary had not, in fact, signed that document. It transpires that someone within either the Treasury or Her Majesty's Revenue and Customs had typed the Financial Secretary's name alongside an impact assessment that he did not know about, he had not seen and he had never authorised.  [ Interruption. ] The shadow Chancellor asked me for an explanation, and the House is entitled to it. That is it. In other words, the Government's policy is and remains that VAT will fall to 15 per cent. at the beginning of next week. It will then rise to 17.5 per cent. In other words, our policy is exactly as I set out in the pre-Budget report on Monday.

George Osborne: The Chancellor has explained how the document ended up on the website. What we want to know is how it was prepared in the first place. We want to know how many Budget options there was a draft order and regulatory impact assessment for. Would he also confirm that the Treasury was considering a 20 per cent. rate in 2012?

Alistair Darling: The shadow Chancellor asked me for an explanation as to why the Financial Secretary signed it, and I have given that. As I said to the hon. Gentleman, like any Chancellor, I considered a wide range of options, and I decided that the fair way to raise money would be through the national insurance system, with a rise of 0.5 per cent.
	The debate today gives us an opportunity to set out, as the shadow Chancellor said on Monday, a clear choice. I believe that, faced with today's extraordinary economic circumstances, there is a choice between supporting people, business and the economy, as countries across the world are now doing, and walking away, saying that we will do absolutely nothing and letting the recession run its course. We have been there before, in the 1980s and 1990s, and we will never return to those days again. The Government and I are determined to do everything that we can to support people and businesses during these extraordinary times, which are affecting this country and every country in the world.

Robert Smith: But surely creating a bureaucratic nightmare for many small businesses through the VAT reduction does not target help on the poorest in the country. At the same time, the Government are threatening to pay for that by putting a tax on jobs in the future, when we want to keep employment, in order to recover from the downturn that the Government have forced upon us. That is surely not the way to tackle the poorest in our society.

Alistair Darling: I believe that cutting VAT, from which everyone can potentially benefit quickly, and the measures that I have implemented to reduce the amount of income tax that the lower paid pay, to increase child benefit and increase the amount of money going to pensioners will all benefit people in this country, as well as the economy as a whole. To stand back and do nothingthat is what we saw in the 1980s and the 1990s, when I think that the hon. Gentleman would have taken a different viewand thereby allow a recession to be deeper and longer would be more painful for the whole of the country, including the people whom he represents. I am not prepared to follow that course.

Several hon. Members: rose

Alistair Darling: In a moment.
	The Conservative party is now virtually isolated in its belief that Government should do absolutely nothing to help. All over the worldin the United States, France, Germany, Italy, Japan, China, Spain, Mexico and South KoreaGovernments are coming to the view that they ought to be helping their economies at a time when they are all being affected by the fallout that started, as the Americans themselves say, in the American sub-prime market last year.

Several hon. Members: rose

Alistair Darling: Before I give way, let me plant something in the shadow Chancellor's mind, as he referred to the Institute for Fiscal Studies so often in his speech. When Robert Chote, the director of the IFS, briefed people yesterday, he concluded his remarks by saying:
	on balance the risk of acting may be less than the risk of refusing to.
	The hon. Gentleman should remember that.

Bob Spink: I am grateful to the Chancellor for giving way. My constituents will be pleased to hear what he has said about not increasing VAT above 17.5 per cent. after we start to out of this recession. Would he acknowledge, however, that Britain subsidises a number of EU countries and that our membership costs us many hundreds of thousands of jobs, and probably up to about 50 billion? Is it not time to start clawing that back?

Alistair Darling: I just do not agree with the hon. Gentleman. Frankly, to cut ourselves off from the European Union at this time, or indeed any time would be absolute madness. He may have left the Conservative party, but a lot of his former colleagues share his view and I totally oppose it.

Chris Ruane: rose

Jim Devine: rose

Alistair Darling: I give way to my hon. Friend the Member for Livingston (Mr. Devine).

Jim Devine: I am grateful to my right hon. Friend for giving way. Is not the difference between our party and the Conservatives that they believe that high unemployment is a price worth paying and we do not?

Alistair Darling: My hon. Friend represents an area that was devastated in the 1980s and 1990s, when the mining and steel industries came to an end. It took yearsmany of them under a Labour Governmentto ensure that we recovered.

John Redwood: I am grateful to the Chancellor. Given that the banking package has so far unfortunately not succeeded in loosening the credit that is so needed for anything to work in our economy, will he look again at that 487 billion package and renegotiate it, so that it is better value for the taxpayer and starts to work for the banks?

Alistair Darling: I will return to that point shortly, but may I just say that I believe that the steps that we took to recapitalise the banks were absolutely essential, because if we had not taken them, we might have been faced with the collapse of the banking system, as the Governor of the Bank of England has said. Secondly, we will have legally binding agreements with the Royal Bank of Scotland Group and with Lloyds TSB and Halifax Bank of Scotland, if that merger goes ahead, which will require them to maintain a level of lending. The right hon. Gentleman will no doubt welcome the statement by the RBS Group and NatWest at the weekend, in which they made it quite clear that they are ready and able to treat their business customers in a way that people will accept.

Chris Ruane: rose

Alistair Darling: I give way to my hon. Friend.

Chris Ruane: At last! Which dictum does the Chancellor feel is most relevant to the current slowdown: the old dictum that unemployment is a price worth paying or the new dictum that the recession should run its course?

Alistair Darling: We on the Labour Benches are quite clear: people elect their Governments to ensure that they help themto help people, businesses and the whole economyduring times of difficulty. For my part, I am not preparednor, I suspect, are my hon. Friendsto repeat the mistakes that we saw in this country 10, 20 or 30 years ago.

Several hon. Members: rose

Alistair Darling: I will give way shortly, but I want to make some progress.
	On Monday afternoon, the shadow Chancellor said that we were heading in the same direction as Japan. I pointed out to him that I had had the benefit of a conversation with the Finance Minister of Japan just recently, who said that one of the reasons the Japanese economy had problems for so long was that the Japanese hesitated and delayed before doing something to help support it. We are not prepared to repeat those mistakes, whether they were made in this country or in Japan in the 1990s. The hon. Gentleman's advice is completely wrong once again. When we look at what is happening in other parts of the world and at what actions other countries are taking, we can see that all over the world, all countries recognise that they have a duty to support their economies at this time. It is only the Conservative party that seems to be taking a completely opposite stance.

Several hon. Members: rose

Alistair Darling: I will give way in a moment, but I am going to mention Europe, which I know distresses a lot of Opposition Members.  [ Interruption. ] They are all sitting down now, Mr. Speaker. Despite what the shadow Chancellor said, right across Europe, including on our doorstep, namely France and Germany, Governments have taken action to stimulate their economies. That is important to consider because it is our biggest trading partner. The European Commission has today called for fiscal stimulus. It has called for a reduction in VAT, for capital expenditure and support for small business, as well as for the European Investment Bank to take actionall the things that we are doing in this country. So yet again, that example reveals the isolation of the Conservative party.

Several hon. Members: rose

Alistair Darling: I will give way to the hon. Gentleman.

Andrew Robathan: I am most grateful to the Chancellor

Alistair Darling: No, I meant the hon. Gentleman behind.

William Cash: The Chancellor of the Exchequer says on page 191 of his pre-Budget report that the contingent liabilities will be disclosed. Does he accept that his figure on page 198, which has already been referred to, is actually 1,258 billion, if one includes the Maastricht arrangements, and that if we add the contingent liabilities, we arrive, at a conservative estimate, at a figure of 2,400 billion? That would mean 120 per cent. of national income, not the figure of 57 per cent. to which he has referred.

Alistair Darling: I do not think that Maastricht has that much to do with it, although I know that Maastricht has something to do with just about everything that the hon. Gentleman ever raises.
	What I find puzzling is why, against the background that I have set out and the determination of countries across the world to take action, the Conservative party should take the position that was set out today by the shadow Chancellor. On 15 July, the Leader of the Opposition said:
	what the government ought to be doing is actually cutting taxes...giving a fiscal stimulus to the economy,
	Yet, only a few months later, he has changed his mind. Indeed, the chairman of the CBI said on Monday that
	this fiscal stimulus is going to cost the Government less than doing nothing because of the impact on unemployment.
	Perhaps the Conservatives should remember what happened in the 1980s and 1990s.

Gordon Banks: Will my right hon. Friend give way?

Alistair Darling: In one moment.
	It would be wrong to argue that the Conservatives did nothing about unemployment in the 1980s and 1990s. They did: they changed the way that it was calculated 31 times. We put up with unemployment that had risen to 3 million. At the same time, the number of people on incapacity benefit rose. I remind the House that there are many people [ Interruption. ] Yes, I do remember it. I remember what happened in the 1980s and 1990s, when, if I remember rightly, the shadow Chancellor was spending his time rather differently from the many people who were on the dole. Yes, there were two different pictures of Britain in the 1990s and people will remember that. I am not prepared to see the high economic and social costs of abandoning people to their fate, which is what the Conservative party argued then and what it is arguing now.

Patrick Cormack: As one who remembers both of those recessions and was a Member at the time, may I say to the Chancellor that in the interests of the country I wish him well and hope his prescription succeedsI genuinely mean thatbut if we are not moving out of recession when he said he felt we would be and if his measures have not worked, will he resign?

Alistair Darling: I was going to say that I know that the hon. Gentleman was here in the 1980s and '90s and that he represents what I might call the decent wing of the Conservative party, but I would not join him in respect of his last remark.

Gordon Banks: Does my right hon. Friend agree that on the basis of the contributions we have heard from Conservative Members today, they have added nothing of any positive value to this debate at all? They are talking the UK down, just as certain Members talked the pound down. Will my right hon. Friend guarantee to the House that he will not be thrown off course by the do-nothing and don't-care party sitting on the Conservative Benches?

Alistair Darling: My hon. Friend is right. I know that part of his constituency also suffered greatly during the 1980s and '90s.

Several hon. Members: rose

Alistair Darling: I shall give way to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), but then I want to make some progress.

Rob Marris: I am grateful to my right hon. Friend. From today's revealing debates, it appears that the Conservative party position now is that in order to get out of the recession, we need credit insurance. Is my right hon. Friend aware of any other current Conservative party policy to address the recession that the world is in?

Alistair Darling: No, I am not, and the shadow Chancellor seemed to go out of his way to make it clear that there was not much that the Conservative party was proposing to do.

Several hon. Members: rose

Alistair Darling: If I may, I want to deal with the important point about banking that the shadow Chancellor made.
	First, I know that both the shadow Chancellor and the Leader of the Opposition have made much of saying that radical monetary action is necessary. I believe that such action is necessary, but those policiesto reduce interest rates, for exampleare only part of the solution. As many have said, when interest rates come down, one would normally expect the impact of that to be transmitted directly into the wider economy and we would all benefit. Part of the current problem, however, as the Governor of the Bank of England, the International Monetary Fund and the OECD have said, is that these are not normal times and the normal way in which the effects of the central bank's interest rates are translated straight into the wider economy is simply not happening. That is why I believe that, yes, it is important to have appropriate monetary policy, which has to be decided by the independent Bank of England, but that it has to be supported by Government action to support the economy as well. In other words, fiscal policy has to support monetary policy.

Several hon. Members: rose

Alistair Darling: In a moment.
	I agree that it is important to get banks to start lending again. The recapitalisation process is part of that and our agreements with some of the banks will also help, but we need to go further. That is why I said on Monday that the Government are ready and willing to hold banks to account. The banks have got to understand that just as in the good times they are falling over themselves to get customers from businesses and individuals, so in these difficult times they owe it to their customers to treat them fairly and reasonably. If the Royal Bank of Scotland Group can help its customers, I think that other banks must do so as well. I made it clear on Monday that if that does not happen, we are ready to take further action to ensure that bank lending resumes.

Peter Tapsell: rose

Alistair Darling: I will give way to a fellow Keynesian in just a moment.
	It is also important that the Government do more, which is why I extended the small firms loan guarantee scheme, which will provide another 1 billion for small and medium-sized businessesit was opposed by the Conservatives. Our current credit guarantee scheme underwrites lending, and I am surprised that the shadow Chancellor should now try to adopt a policy he opposed as one of his own. We are taking steps to help small businesses and we will continue to do so.

Peter Tapsell: We can all agree on the importance of monetary policy. Nobody wrote with greater authority or greater length on the subject than John Maynard Keynes. We need not argue about that, but the point is that when the bank rate goes down to 1 per cent., 0.5 per cent. or even zero per cent., as the Governor of the Bank of England was suggesting only yesterday, monetary policy enormously weakens. Anyone using that weapon alone is in a very serious situation. That is why the liquidity of the banks is now the crucial issue and the next most crucial and closely related issue is how we are to avoid mass unemployment in the years ahead.

Alistair Darling: As the Prime Minister said to the hon. Gentleman earlier, we largely agree with what he is saying, but his problem is that his Front Benchers do not agree with it. As to bank lending, the hon. Gentleman is quite right. A combination of low interest rates and the measures I announced on Monday to help the economy must be accompanied by two further actions. First, we need to do everything we can to get bank lending resumed, particularly to the small business sector, which is crucial. Secondly, the other thing that will help, and this is something that the Conservative party simply cannot accept, is that if other countries across the world stimulate their economies, there will be a far better chance of mitigating some of the worst effects of the slowdown so that our economies can start to grow far more quickly than they otherwise would.

Lindsay Hoyle: May I reassure my right hon. Friend that the memories of people across Lancashire whose minds were scarred by the complete destruction of manufacturing throughout the '80s are intact and what happened has not been forgotten or forgiven. Will he reassure me and those people in Lancashire that when it comes to procurementand this Government procure a great dealthe Government will support British jobs in manufacturing?

Alistair Darling: I agree with what my hon. Friend says and I very much hope that British firms will benefit not just from Government procurement but in the supply chain by the involvement of a wider number of companies.

Nick Palmer: I was elected as a new Labour MP with a business background. Up to now, I would not have supported intervention in the banks on the scale that may be necessary, but I believe that the overwhelming majority of my constituents support my right hon. Friend's stance that the money given to the banks must be passed on and that national banking managements must tell their branches to resume lending to companies that need it.

Alistair Darling: I agree with my hon. Friend and I know that he speaks with considerable experience in business. It is important to encourage the banks to resume lending, as I have said.

Several hon. Members: rose

Alistair Darling: Let me make a bit of progress.
	It is not just that the Conservative party does not accept the case for helping and simply walks away instead; it is also that its position on borrowing is completely confused. The Leader of the Opposition said only a couple of weeks ago:
	Borrowing goes up. That is inevitable and you have to allow it to happen.
	A week later, the shadow Chancellor said that borrowing was the wrong approach, yet his shadow Chief Secretary, the hon. Member for Runnymede and Weybridge (Mr. Hammond) had said a day earlier that
	to increase borrowing to deal with an economic downturn is a perfectly sensible thing to do.
	He was absolutely right on that point, if not on any other.

Several hon. Members: rose

Alistair Darling: I give way to the hon. and learned Member for Harborough (Mr. Garnier), but then I am going to make some progress.

Edward Garnier: I thank the Chancellor. Will he give us his best estimate of the cost of interest on Government borrowing over the next five financial years?

Alistair Darling: What I would say to the hon. and learned Gentleman is that because interest rates are lower, the Government will benefit from it. I will also say something else to him: if we do not do anything, as we saw in the early 1990s when debt actually doubled, the cost to the Government and to every individual man, woman and child in the country will be far higher. That is why I believe that Government should intervene in order to help.

Several hon. Members: rose

Alistair Darling: I am not giving way. I want to make some progress and deal with some important points.

George Osborne: rose

Alistair Darling: All right, I will give way to the shadow Chancellor as a matter of etiquette, but I want to deal with some of the points that he raised.

George Osborne: I am grateful to the Chancellor for giving way. He was talking about trying to get the banks to do more. Will he confirm that this afternoon Northern Rock, which he owns, increased its interest rate on a one-year fixed mortgage from 3.99 per cent. to 4.19 per cent.?

Alistair Darling: As the House will know, part of our business plan for Northern Rockwhich, of course, had to be approved under the state aid rules of Europeprovides that it must reduce the number of people to whom it lends in order for the business to survive in the longer term. I must say that that was a bit rich coming from the shadow Chancellor, who opposed our nationalisation of Northern Rock and who would have done absolutely nothing to save the bank.
	The shadow Chancellor claimed that our accounts and the figures that I gave on Monday were not right. They were right. We have set out a clear plan for how we will support the economy now: how we will help businesses and people, and, in the medium term, how we will raise the funds that are necessary for borrowing to be brought back down to a current balance by 2015. Unlike the Conservative party, we have set out a plana plan to help Britain now and to ensure that we have sustainable finances in the future.

Sandra Gidley: The Chancellor mentioned businesses. Will he note that our French neighbours have injected 19 billion to boost bigger businesses such as the car industry, so that firms such as Ford in Southampton can have a more certain future?

Alistair Darling: I will say to the hon. Lady that Europe is very important.
	I think it right for me to say a word about spirits. I refer to the spirits that we drink, rather than the ones that we might imagine. I said on Monday that I wanted to ensure that the level of taxation on alcohol and cigarettes remained the same, so that broadly speaking the reduction in VAT would be cancelled out by a change in duty. I think that, in relation to spirits, what we announced on Monday did not achieve that, so I am tabling a further order today to ensure that the duty on spirits is charged at a slightly lower rate. I think that that will hugely benefit the spirits industry wherever it is.

Anne McIntosh: In the pre-Budget report, the Chancellor referred to increasing fuel duty on petrol and increasing national insurance. Those two measures alone will damage people who live in rural areas such as the Vale of York, and will push up the cost of delivering public services in those areas. How can the Chancellor say that he wants to help people when he is damaging those living in rural areas in that way?

Alistair Darling: The most damaging thing that we could do to rural areas would be to allow a situation to develop in which a recession became longer and deeper than it would be otherwise. I believe that the measures we have announced will help not just peoplebecause of the reductions in income tax, the fact that we have been able to increase the amount going to pensions and pension credit, and the fact that we have been able to bring child benefit forward to Januarybut businesses. We have helped businesses in relation to loans, and we have helped the construction industry by supporting house building. All those measures will make a substantial difference to the country.
	The one point on which I agreed with the shadow Chancellor when he spoke on Monday afternoon was this. The country does have a choice. The choice is between a Government who are ready to help people and businesses to ensure that we get through this and can seize the huge opportunities that we have for the future, and a Conservative Government who would simply walk away and abandon people and businesses.
	The shadow Chancellor made much of this afternoon's debate, but he had absolutely nothing to announce that would help this country and the people of this country. I believe that the measures I announced on Mondaya wide range of measureswill help people. We will continue, as a Government, to do everything we can to help our economy, to help businesses and to help people.
	I believe that the people of this country, just like those in the House, will reject the postures of Conservative Members. They have no serious proposition to present, they do not know what their policies are, they are inconsistent and they are incoherent. I believe that the approach set out by our Government is the right approach, and we will see it through.

Vincent Cable: I welcome the debate, and congratulate the Conservative shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), on securing it. A three-hour debate does not really do justice to the magnitude of the problem, but we are grateful to you, Mr. Speaker, for agreeing to it.
	The hon. Member for Tatton made several key points with which I agree. I agree that the figures for the economy and the public finances are poor, but at the same time they are optimisticvery optimistic. It is worth noting that Mr. Robert Chote of the Institute for Fiscal Studies, whom the Chancellor has already called in aid, observed yesterday that what is being hidden here was not so much a tax bombshellalthough there may be one of thoseas a drastic cut in public investment over the period to 2012-13. That makes complete nonsense of the Government's claim to be borrowing to invest.

Richard Benyon: The hon. Gentleman will notice that page 200 of the pre-Budget Report contains a line that sounds fairly innocuous:
	The uncertainty surrounding economic prospects in turn implies greater than usual risks surrounding the public finance projections.
	Does he agree that that is Treasury-speak for a very serious warning about the optimistic forecasts in relation to the length and depth of the recession that the Chancellor made on Monday?

Vincent Cable: The hon. Gentleman is right, and I shall develop that point further in a few moments.
	The second point on which I agree with the hon. Member for Tattona point, indeed, that the Liberal Democrats have been making trenchantlyis that the banking crisis is almost certainly more important in terms of its impact on the economy, and we need to divert a good deal of attention to that problem. However, I disagree fundamentally with the hon. Gentleman's belief that there is no need for a fiscal stimulus. I think that that is absolutely wrong.
	The ConservativesI shall say more about this laterare presenting themselves as the party of change which identifies with the change on the other side of the Atlantic, but while we sit here debating the issue, the incoming Obama Administration are discussing a fiscal stimulus that is 20 to 25 times bigger than what the British Government propose. It is also two to three times as much in relation to the American economy, andin answer to the shadow Chief Secretary, the hon. Member for Runnymede and Weybridge (Mr. Hammond)it starts from a point at which the Americans' debt position in relation to GDP is worse than ours. Nevertheless, they have to apply it.

Frank Field: Can the hon. Gentleman tell us whether the President-elect is thinking of spending that money on VAT cuts or on income tax cuts?

Vincent Cable: I think that the emphasis is on helping low-income familiesand I welcomed the right hon. Gentleman's contribution to the debate in the form of a letter in this morning's  Guardianbut the emphasis is also on public investment. I shall say more about that shortly as well.

Dari Taylor: Will the hon. Gentleman give way?

Vincent Cable: I must make some progress first.
	Before we discuss the issues in detail, I want to refer to the terms of the overall debate. I think that the public outside the House are becoming increasingly disenchanted with hearing on the one hand the argument that this is all the fault of the Prime Minister, and on the other hand the argument that it is all the fault of the American sub-prime market and nothing to do with us, guv. The obvious explanation is that there are policy failures here, and an international crisis at the same time. Both those factors apply, and any reasonable debate must start from that assumption.
	Let me return to the first point: the numbers, which have already been read out. The hon. Member for Tatton was correct in saying that the forecast that the Government are using to predict a recovery in 2010, with growth of 1.5 to 2 per cent., is wildly optimistic in comparison with the figures given by all the other main public bodies. The figures given by the International Monetary Fund, the European Commission and the OECD are significantly lower, as are those given by the National Institute of Economic and Social Research. Interestingly enough, the only two bodies that are forecasting the kind of growth in which the Government believe are the investment banks. They are the institutions which, for the past decade, have been gambling with their investors' money in a reckless, over-optimistic manner, and they are the people on whom the Government are relying for advice.
	The truth is that the growth of the economy in the next two years is almost certain to be negative or virtually negligible, and the advice of the key independent agencies is that planning must be based on that assumption.

Dari Taylor: Is the hon. Gentleman saying, as many economists and serious commentators in the press are saying, that the mess we are in today is in part, and a good part, a consequence of the actions of the City of London and incompetent bankers?

Vincent Cable: Of course it is. However, I want to move on from ascribing blame to establishing how we should deal with it. To do that, we must take stock of where we are with the public finances. What is very striking from the numbers is that the profile of public borrowing on which the Government are embarking is almost identical to that of the early 1990s. I guess that both the Conservatives and Labour are embarrassed about that and do not want to draw too much attention to it. In 1992-93 and the following year, public borrowing amounted to 7.7 per cent. of GDP, and the current Government are planning 8 per cent. and 7 per cent., which is almost identical. The problem for the Government is that, for several reasons, this is almost certainly too optimistic. Their growth forecasts are optimistic, and they are assuming massive efficiency gains that no one in Government believes in, and, crucially, they are assuming severe control of public expenditure for the foreseeable future: 1.4 per cent. annual growth in public spending. If anybody believes that, they should look at a reference, buried away on page 210 of the PBR, to public sector pension costs. I am talking about not public sector pension liabilities, which is a big issue, but actual cash spending, which is, of course, a non-discretionary itemthe Government cannot do anything about it unless they legislate. The reference shows an increase in public sector pensions from 1.2 billion in 2006-07 to 3 billion this year and 4 billion next year, but three years ago the Government were estimating it at only 600 million. That is completely out of control, and it will squeeze other key elements in public service delivery.
	Lord Oakeshott, my colleague in the other place, raised this in the Lords yesterday, and our colleagues in the Lords moved a motion recently to try to set up a public service pensions commission based on Lord Turner's recommendation that this difficult issue should be properly examined. We could not understand why not only the Government but the Conservatives voted against the proposition. They want to keep this in the long grass, but it is a crucial issue that must be addressed.

Michael Jabez Foster: Is the hon. Gentleman therefore saying that public sector pensions are unaffordable and that he would want to renegotiate them?

Vincent Cable: In terms of contributions and commitments, the costs are simply unsustainable on the current basis. Although Members are, of course, beneficiaries, we will have to look at this issue, because otherwise elements of public spending will be drastically squeezed to pay for it.

Gordon Prentice: Does not the new top rate of tax cover the commitment entirely?

Vincent Cable: I will come to that later, but according to the IFS the new top rate of tax will yield zero revenue.

John Redwood: On fiscal judgment, if the fiscal deficit were as low as the Government and the hon. Gentleman suggest, I could see the case for this, but is he not aware that we are in fact down to borrow 157 billion this year, before the deep recession hits, which is more than 10 per cent. of national income? That is why some of us think that this is too risky.

Vincent Cable: Let me take that last phrase; is it therefore too risky to embark upon a fiscal stimulus? That is the key issue, and I wish to move on to it. The Conservatives have clearly taken the view that it is too risky; they believe that it is either too dangerous to have a fiscal expansion, or that that will be ineffective. I fundamentally disagree, because it is one of the fundamental duties of Government in times of war and slump to sustain the economy. The Government inevitably are, and have to be, the investor of last resort to keep economies going and ultimately to reduce the level of borrowing, which rises if economies get into a downward spiral. That is a fundamental duty.
	The Chancellor had a very good line in his response on Monday, which we all laughed at. It was about past Labour Chancellors, but if he knew a little more about Labour history, he would remember that the really tragic case was not Denis Healey, James Callaghan or Sir Stafford Cripps, but it was a man called Philip Snowden, and his boss, Ramsay MacDonald. They came into office, rather as the Conservatives now hope to do, in a slump situation with the hopes of the nation behind them, and they looked at the public accounts and said, This is awful. We have to cut back and balance the Budget. Millions of people suffered as a consequence. That is, I think, the course that the right hon. Member for Wokingham (Mr. Redwood) and his colleagues want us to embark upon.

Kenneth Clarke: Surely the hon. Gentleman is not asserting that there is no risk in borrowing on this scale against the background of the accumulated debt that is having to be tackled? Does he not accept that if we find it impossible to fund this debt, we will be in appalling trouble? The chances are that interest rates will be driven up by the Government's need to raise them in order to pass on their bonds, and we will face a serious risk to the value of sterling with further problems arising from that. Surely he is not saying there is not a very considerable risk. There must be a balanced judgment at least. The idea that we have to spend this money is utterly reckless, which is rather out of character for the hon. Gentleman.

Vincent Cable: Of course, the former Chancellor, whose views are always respected here, is making the correct point that there is a balance to be struck and there is risk, and the cost of Government borrowing in the gilts market is a key consideration. However, the fact is that in emergency situations, Governments have a responsibility. That is most obviously the case in war. Nobody expected that Mr. Churchill would stand up and say, Sorry, we can't keep on fighting on the beaches because there is growing worry in the gilts market about the rising cost of ammunition. In emergency situations, Governments have to act, and although this is not war, it is an economic emergency and it requires drastic action.

Graham Stuart: What we have from the Chancellor is a proposal to spend more than the total cost of funding the second world war and rebuilding Britain afterwards, and that, it seems, is still delivering an inadequateto borrow the hon. Gentleman's wordfiscal stimulus. Is he therefore suggesting that we should throw caution to the wind and borrow a lot more than the Chancellor proposes to deliver the kind of stimulus he says the country needs?

Vincent Cable: I am not throwing caution to the wind. Indeed, our proposals for tax cuts for the lower paid were fully funded, and in that sense

Peter Lilley: Will the hon. Gentleman give way?

Vincent Cable: Can I just press on?
	In that sense, our proposals underline what the Conservative party has acknowledged on funding. The first thing that has to happen, which I do not think the Conservatives are recommending, is that public investment must be maintained, or preferably increased. What is so worrying about the IFS analysis that came out yesterday is that the Government are proposing a cut of 16 per cent. in public investment over the next three years. How on earth is this supposed to stimulate the economy and maintain infrastructure so that it can handle the increased demand when the economy recovers? That makes absolutely no sense.
	Let me just take a couple of examples of how this is working through. Housing is the obvious area. The Government make a great deal of the fact that they propose to bring forward 800 million of expenditure on social housing. We want to see more expenditure on housing; it is highly appropriate in this context, and that kind of money would buy about 6,000 houses in the current economic environment. However, the Government said two years ago that they had a plan for social housing costing 8 billion. What happened to it? Where did it go? The truth is that it is stuck, as many of the housing associations are on the brink of bankruptcy because they entered into strange deals with developers at the peak of the market to build shared housing and they cannot progress on that, and the Treasury is quibbling with the housing associations about the funding formula, so nothing is happening. There is, therefore, a wholly inadequate response in terms of public investment. What the Government can and should be doing by way of stimulus is making sure that this public investment does happen.

Oliver Heald: Can I take the hon. Gentleman back to the issue of pension costs? It is true that pension costs in the public sector will go up a good deal because they are index-linked and this year the retail prices index is high. However, is he seriously saying he would want to review or change that, because when all is said and done, these pensioners have earned their pensions and they are entitled to the increase?

Vincent Cable: I am now beginning to understand why Conservative Members are so scared of the issue, but it has to be faced, both in terms of contributions and entitlements; otherwise, it is fundamentally unsustainable. It is no good Members bouncing up and down here in the Chamber to talk about the long-term pension liabilities of the public sector unless they are willing to address the issue.
	Let me move on in my discussion of what the fiscal stimulus actually means. One of the key elements of stimulus is public investment and the other is taxation. The Government have announced this VAT cut. The Liberal Democrats have made it clear that we regard this as not the best way of cutting taxation. There is an interesting little note in the impact assessment suggesting that business will have to pay 50 million to adjust to the change in prices, and then have to pay another 50 million when they change back again in 18 months.

Malcolm Bruce: Is my hon. Friend getting the same reports that I am getting from the construction industry? It expects to lay off hundreds, if not thousands, of people early in the new year when the current house building programme comes to an end. Does he agree that this is an opportunity to use a recession to create infrastructure at a more affordable price than would be the case if we were to wait until the economy started to recover?

Vincent Cable: If the Government were really serious about VAT reform, they would be considering the VAT on home improvements, which is one of the obvious areas that could change the picture.
	The Liberal Democrats believe that there should be a significant, but permanent tax cut for low-paid workers; we have suggested the equivalent of 16 billion to 18 billion, which is in the ballpark of the Government's tax proposals. We propose that that should be paid for by people higher up the income scale. Of course, the Government have put forward what they regard as a redistributive elementthe new top rate of tax, which will be 45p in the pound. I have taken an intervention that suggested that that will raise a lot of money, so I shall repeat that the Institute for Fiscal Studies says it will raise no revenue. We should know that, because for many years when we had a similar proposal, the Government told us that it would raise no money. They are now putting this forward, apparently aware of the consequences of their own arguments. It will raise no money for the following reason: why would people with a high income pay a 45 per cent. marginal rate of tax on it when they could convert it into capital and pay 18 per cent., as any tax accountant would tell them to do? Why would they not persuade their employer to give them relief from higher income tax and put it into a pension pot that, again, will accrue relief from the higher rate tax of 45 per cent? Those are the obvious measures that any Government who are serious about income distribution need to address.

David Taylor: The hon. Gentleman is making an excellent speech. Does he agree that the IFS has got it wrong when it says that the 45 per cent. rate will raise next to nothing? It argues that the rate will lead to a greater number of people leaving the country and/or using avoidance schemes. Those arguments were precisely the ones used in relation to non-domiciles, but there has not been a queue of people leaving the country, and there has been no apparent, substantial increase in the use of avoidance schemes. Is the IFS not making a misleading point?

Vincent Cable: Back Benchers are getting a bit desperate over this. The truth is that even if there were no behavioural effects, the Government would raise 600 million, which is a 20th of what they need to make from their tax cut. This measure is pure tokenism and has no economic significance.

Julia Goldsworthy: My hon. Friend is making a clear case to show that, at the top end of the scale, those on high incomes are able to get around tax changes, whereas for those at the bottom end, council tax and the like are increasing by more than inflation. The pre-Budget report has made an assumption that council tax will increase by 4.5 per cent., but these people probably are not even claiming their council tax benefit and this money comes out of their net income. Do not changes need to be made to help those on the lowest incomes?

Vincent Cable: Absolutely. I am hoping that the right hon. Member for Birkenhead (Mr. Field) will have an opportunity to make his point, because I know that the fact that the Government have not yet fully committed themselves to permanent compensation for those very lowest earners is something that concerns him.

Angus MacNeil: rose

Vincent Cable: I wish to make progress and deal with the bigger question, in quantitative terms, about what is happening in the banking system. The Chair of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall), made a very effective intervention in Prime Minister's questions, reminding us of what the Governor of the Bank of England said yesterday. The Governor said that in relation to the funds that the banks already havehe was not talking about long-term commitmentsthey are acting in a way that, individually, makes perfect sense. The banks are conserving capital, they are hanging on and they are keeping the Government out of their affairs. They are preparing for the days when they can go back to paying dividends and bonuses. From their own self-interested, short-term point of view, their approach is entirely rational, but collectively it is suicidal. The Governor made that point very clear.
	Of course, there are many ways in which we can move on the flow of bank lendingwe broadly support the proposal made by the Conservative shadow spokesman, and we have advocated it from these Benchesbut before we talk about new institutions, why not focus on the money that is already there? That is the money that the Government have committed, much of which has not yet been taken up, and the guarantees that the Government have offered, which also have not been fully taken up. The Government cannot just walk away from this pathetic decision not to put their own representatives on the boards of the companies that are semi-nationalised. They should be on those boards and they should be setting the strategy of the banks.

Alistair Darling: I am listening with great interest to what the hon. Gentleman has to say, but he is wrong on this point. One of the conditions of the recapitalisation of the Royal Bank of Scotland Group is that the Government would nominate three directors. If the merger of HBOS and Lloyds goes ahead, we will have two directors there as well. His point on that has been met.

Vincent Cable: In that case, I apologise for getting it wrong. I hope that the Government will do what they did with Northern Rock: publish the terms of reference of these directors to tell them the strategy that they will be required to follow. That is essential to getting the economy going.
	A year or so ago, I made myself rather notorious in this place by pointing out that within a few weeks the Government had descended from order to chaos. Within the past few days, a similar transformation has taken place, from hope to despair and anger in the country. Unless we get a more effective response to this crisis, from both major parties, that anger and despair will continue.

Several hon. Members: rose

Mr. Deputy Speaker: Order. Before I call the next speaker, may I remind the House that Mr. Speaker has placed a 10-minute limit on all Back-Bench speeches? That starts from now.

Ruth Kelly: It is a pleasure to address the House this afternoon, and I for one welcome the opportunity to debate the pre-Budget report. It is an incredibly significant economic and financial statement not only in its own terms, but because it has redrawn the financial and economic dividing lines between the two major political parties, perhaps for years to come.
	This afternoon, the Conservative spokesman made an interesting proposal on setting up a new state institution. I intend to discuss in due course how we deal with the resumption of inter-bank lending, but on the fiscal stimulus, the Conservatives have made an historic mistake. I say that because since the middle of September the terms of the debate have changed fundamentally, with the collapse of Lehman Brothers and the systemic risk to the banking system. Not only is the recession potentially severe, but the outlook has deteriorated very sharply, so we must contemplate using all the economic and financial levers at our disposal. That includes using monetary policy to its full effect, wherever possible; using financial policy where that is possible; and using a fiscal stimulus. That is necessary to stave off not only what is now an inevitable recession, but the prospect of a global slump.
	I shall start by discussing the macro-economic stance. Each week that goes by, the economic news seems to become worse. The speed at which this country, like every other major developed country, is entering recession seems to be gathering pace, whether we are talking about the rapid and significant increase in our unemployment, the dramatic fall in inflation and commodity prices or the further downturn in net mortgage lending, which we heard about yesterday. It is becoming widely accepted that our global financial system has experienced its most severe instability since the first world war. The Opposition would be right to suggest that monetary policy should take the strain if this were a typical downturna downturn generated by a failure of domestic economic policy or a downturn in domestic demandwith fiscal policy taking a subordinate but supportive role, but this is not a typical economic downturn.

Andrew Pelling: The right hon. Lady recognises the robust way in which the Government have acted, but surely it is not enough just to have rescued the banks; it is necessary to repair them too. In reality, they are not in a position to lend until those bad debts are taken off their balance sheets, and a bad bank needs to be created to do that. Time needs to be taken to create a new bankperhaps a post bankthat would be able to lend effectively in the economy and get economic growth going again.

Ruth Kelly: I intend to discuss how to try to get banks lending to each other again in due course. Creating a bad bank to deal with toxic assets is not necessarily the right way forward, partly because it is incredibly difficult to value those assets appropriately and the Government end up taking all the very worst of the debt without appreciating its true value. Of course, everything ought to remain an option as we go through these difficult times.
	The Opposition have failed to appreciate a fact that was the essential point of my right hon. Friend the Chancellor's statement. In a global credit crunch the impact of monetary policy is at best uncertain and at worst negligible. Evidence mounts day by day, week by week, and even though the 1.5 per cent. interest rate cut was passed on to people with tracker mortgages, credit conditions remain incredibly tight. That is the case for mortgage holders but more particularly for small and medium-sized enterprises. There is evidence that good going concerns are being refused credit, that the availability of credit is shrinking and that the price of terms that have already been agreed has also increased.
	Although the 1.5 per cent. cut has been passed on to those with tracker mortgages, the spread between inter-bank lending rates and base rates remains stubbornly high and there is no immediate sign that it will be reduced. In such circumstances, it would be hugely unwise to rely on monetary policy as the way out of the recession. Of course, monetary policy might help somewhat and if there are further deep cuts in interest rates they might act as a stimulus, but we should not bank on those measures as the only stimulus.
	In precisely such credit constraint conditions, fiscal policy becomes ever more potent. I am glad that the Opposition have at least come to realise the importance of using the automatic stabilisersa term that is now entering common currencyas tax receipts fall during a recession and benefit payments rise. It is incredibly important that the automatic stabilisers are used not to provide a fiscal stimulusthey do not do sobut to prevent fiscal policy from tightening and exacerbating any potential recession.
	All credible economic commentators around the world seem to concur that a fiscal stimulus is needed, rather than just a use of the automatic stabilisers. In fact, the Bank of England, which published its quarterly inflation report yesterday, assumed as its central prediction that output would start to pick up from the middle of next year. The Bank of England, far from making the Government's case look somehow out-of-step and over-optimistic, also expects growth to resume from the middle of next year. However, it did not take into account the potential impact of any fiscal stimulus. The report states that
	the slowdown may be less pronounced if...there is a stronger stimulus from fiscal policy.
	It is not just the Bank of England. The Institute for Fiscal Studies welcomed the fiscal stimulus this morning, as did the CBI. Abroad, we are backed in our resolution by the IMF and by most credible economists and commentators. The argument against the use of fiscal policy usually rests on the following facts. First, people think that it takes too long to implement and if not carefully designed can end up turning a fledgling recovery into an unsustainable boom. Secondly, some people argue that if taxes are cut in the short term people will not necessarily spend the extra money because they think that taxes will rise in the medium term. Thirdly, people think that a fiscal boost could add to inflationary pressure. The likelihood of inflationary pressure being a problem seems entirely remote and should not keep many people awake at night.
	Let me turn to the first two potential problems. Will the cut in VAT and bringing forward spending take too long to implement? Absolutely not. As we know, the cut in VAT has been turned on to take effect almost immediately and is clearly temporary, so VAT will rise in the future. The beauty of the VAT reduction is that unlike direct income tax cuts it can be implemented virtually straight away and can clearly be seen to be temporary. Given the potential severity of the downturn, it does not seem at all plausible that the measure could end up stoking a domestically generated boom. I find it extraordinary, incidentally, that the Liberal Democrats are arguing that a permanent funded tax cut could ever act as a temporary fiscal stimulus, but I leave that to their spokesman to explain in the future.
	Is it the case, as the Opposition sometimes seem to argue, that people would just pocket the reduction in taxes and not spend the money to produce the desired stimulus? I find that hard to believe given that households across the income spectrum are credit constrained. That is what is happening with the global credit crunch. When people have more money in their pockets to spend, they tend to spend it. The Government have made a fairly conservative estimate, saying that about half will be spent and half will be saved. However, even if half that money is saved it will be because people are paying back their debts, and that will place them in a stronger position to spend in the future.
	The Government forecast that the reduction in the impact of the recession will be about half a percentage point. It is easy to underestimate that effect. That reduction will keep a much larger number of people in their jobs throughout this downturn than would otherwise have been the case. It will keep more small businesses afloat, many of which would have gone bust during the economic downturn.
	Of course, all that is likely to be far more powerful if countries act together rather than independently. When people spend their money on fiscal boosts, some of it will clearly go on imports from other countries. If everybody acts together, the impact of a fiscal stimulus is likely to be far more powerful. For that reason, we should welcome the fact that Japan, Germany, Spain, South Korea and China have announced or are planning a significant stimulus package. In particular, we should welcome the move announced yesterday by the United States. The injection of $800 billion into the US economy should have a pronounced effect not just on them but on us.
	What happens to the public finances over the medium term is obviously important when it comes to the UK's position. I noted that the hon. Member for Tatton (Mr. Osborne) talked about the seven-year figures as fantasy figures. I cannot agree with that. What is the alternative? When a global credit crunch causes permanent deterioration in and damage to the output of the economy and when one cannot foresee how quickly corporate profitability will increase in the futureit will clearly remain low in the medium termit is right that we should take our time before public finances are brought back to balance. The alternative, which would be to bring them back to balance much more quickly, would risk tightening fiscal policy at a time when another shock might come along in the system and make it worse.

Geoffrey Robinson: On the question of receipts that probably will not come backthey certainly will not do so in the near futurein financial services, such activity represents one third of the total receipts of the sector, which will probably not come back at all. Does my right hon. Friend agree that that represents a structural problem for us to overcome?

Ruth Kelly: It does. As my hon. Friend knows, that would mean that whatever the Government decided to do as a fiscal stimulus, either spending would have to be restrained or taxes would have to go up in the future. Given that we can use the fiscal stimulus, it is likely that we will pay back less in the future by ensuring that the economy does not suffer some of the permanent damage that might otherwise be inflicted.

Paul Farrelly: I appreciate my right hon. Friend's points on monetary policy, particularly if those people who have access to the best trackers also racked up the biggest credit card bills in good times and therefore pass the reduction down by paying the debts. In that instance, in uncertain times, monetary policy has a limited effect. With respect to fiscal policy and Government spending and actions, does my right hon. Friend agree that it is important that the levers that we pull work? For instance, social landlords should build social housing.

Ruth Kelly: I completely agree that we need to ensure that what we say in public is translated in practice into real action.
	That brings me on to inter-bank lending. As my right hon. Friend the Chairman of the Treasury Committee has pointed out so forcefully, there is a risk that what is right for any single bank in isolation is not right for the banking system. I urge the Chancellor to consider very seriously the proposals laid out in the Crosby report yesterday.
	Any proposal, whether it is for a new state institution or is a Crosby proposal, will have to pass some fundamental tests. Do we really want the market in mortgage-backed securities to be resurrected at a time when the mortgage-backed security market has dried up? Would it potentially bias one form of lending against another? How does it fit with the credit guarantee schemes and will it make them more likely to work, or will it crowd out those proposals?
	We should act together to try to get the banks to start lending to each other. We are in serious times that demand serious solutions. I urge my right hon. Friend the Chancellor to take any action that he thinks is appropriate.

Kenneth Clarke: I am afraid that in this country we are probably facing the longest and deepest recession of my lifetime. I entirely share the sentiments of my hon. Friend the Member for South Staffordshire (Sir Patrick Cormack); I hope that my forecast, along with all the other more gloomy forecasts, is wrong, because I do not wish to see the levels of unemployment, housing repossessions and business failures that we will see if we do indeed have the worst recession since the second world war. It is a very real risk, however, and there is no doubt that the global financial and banking crisis is the worst of its kind for at least 80 years. It has been made worse in this country, and we are more exposed than most developed countries, largely because of the mismanagement of the public finances and the failure to retain a sufficiency by way of firepower in the public finances. That is largely down to the former Chancellorthe present Prime Ministerand the complete failure of the regulatory system that he put in place when he took office.

Angus MacNeil: Prior to the 2007 election in Scotland, which Labour lost, Labour people ran around with scare stories about how there would be 5,000 of debt per household in Scotland. The Government's own figures for the end of that period show a figure of 48,000 in debt per household. Does the right hon. and learned Gentleman think that the Chancellor and the Government should apologise?

Kenneth Clarke: Yes, I do. The scale of the debt should dominate the debate, because it is the main substance of the pre-Budget report, so I will turn to it in a moment.
	I am not going to go back to past recessions, although the Government always refer to the two that we had previously, which we shared to a certain extent with the rest of the globe and which, I remind them, we successfully exited. Obviously we looked at the usual monetary and fiscal weapons; indeed, we used them in a new way. We used monetary policy to target inflation, because they were inflationary recessions, and we went for sound fiscal policy to restore confidence in the public finances and provide the background of stability that was required to get back to growth in the economy. Of course we looked at all the options, including fiscal stimulus. However, I remind the House of my right hon. Friend Lord Howe's Budget in 1981. When he imposed very stiff increases in taxation and reductions in public spending in order to get back to fiscal stability, he was berated by all the so-called Keynesiansit was a bit of an insult to John Maynard Keynesfor doing so, but it was successful. I will not dilate on my own Budget of 1993, but I also had a fiscal problem, to a modest extentit was not as bad as the one faced by Geoffrey Howeand I did the same thing. Fiscal stimulus can be considered, but there are often good reasons for rejecting it.

Peter Tapsell: rose

Kenneth Clarke: I give way, for the last time, to my hon. Friend.

Peter Tapsell: As someone who berated the 1981 Budget well before the 364 signatories to the famous letter, I said that a Budget that I described as intellectually and economically illiterate would destroy the base of British industry, and that was truethe west midlands has never recovered. The 1981 Budget is the reason why now, with the collapse of our financial industry, we do not have a proper industrial base.

Kenneth Clarke: My hon. Friend was the most distinguished of those very strong critics in 1981. I did not agree with him then, and I do not now. I agree that our industrial base was destroyed, but I put that down to the excessive strength of sterling before 1981, which destroyed our competitive position. However, we can debate that hereafter.
	Fiscal stimulus was not used on either of those occasions. It was ruled out as an option

Christopher Huhne: Will the right hon. and learned Gentleman give way?

Kenneth Clarke: No, I cannot, because I have a time limit; I am sorry.
	Fiscal stimulus was not used on either of those occasions, and we successfully recovered from a recessionand the current Government benefited from that. The long track of figures that the Chancellor recited today were part of the process of getting the level of public debt back under control and getting the budget surplus steadily reduced so that the new Government could merely say that they would stick to the Major Government's figures. They then found that they were restored to balance in fairly rapid order; indeed, they began to accumulate very large Budget surpluses once we had the dotcom boom.
	This crisis is differentit is at heart a banking and a credit crisis. I agree with the several speakers who have said in interventions or speeches that that is the main point that we must keep our eye on. Unless and until we get back to the normal functioning of the banking system, we will not have restored the British economy to health. Although it is very important to debate the public finances and the tax and spending proposals, as we are today, because they are part of the picture, to some extent we are addressing a symptom, not the root cause.
	I want to emphasise that the big gap in Government policy, which was not really referred to in the PBR and was only hinted at by the Chancellor in his speech, is that they still have not produced a credible package to get the banking system functioning properly againby which I mean resuming lending on a sound and commercial basis to households and businesses that can properly afford to take on the debt under a proper system of risk management. We are a million miles from that at the moment, and for as long as we remain so we will not have recovery; indeed, we are only at the beginning of recession that will almost certainly worsen well into 2009.

Andrew Pelling: rose

Kenneth Clarke: I cannot give way because I have a time limit and other Members want to speak; I apologise.
	Of course we all agree that monetary policy should be used as far as it can be. We are now in a position where the further reduction of bank rates is inevitable. I think that the Bank of England is the one institution that has handled itself pretty well, both before and during this crisis. I exclude it from most of the blame for the catastrophic folly that led up to the beginnings of the current problems. The trouble nowI actually agree with the right hon. Member for Bolton, West (Ruth Kelly) on thisis that monetary policy, in its classic sense, is not working and will not work for some time. The levers are not connected to the system. The availability of credit and the price that one has to pay for it does not bear much relation to the Bank of England's base rate. At some point that will click into gear again, but it could be some way off, so we have to look to fiscal policy.
	My views have been quite well reported. Of course I accept that in these circumstances anybody will consider the prospects for fiscal stimulus. It is important, across the globe, that the surplus countries go in for very substantial fiscal stimulus. However, everybody has to consider whether the pressing problems of the forthcoming recession justify a degree of risk, and they do justify a degree of risk if fiscal stimulus will work. The key judgment is whether the state of the public finances makes the risk totally unacceptable.
	I agree with the hon. Member for Twickenham (Dr. Cable) that there needs to be a balance, but it is a key judgment call. He seems instinctively to rush in saying, Regardless of the quite appalling state of affairs that is revealed in the pre-Budget report, we still have to add another 20 billion to what is already there. I come to the opposite conclusion. We only have to begin at last to get some up-to-date figures, and to see what is revealed, on a very optimistic basis, in the pre-Budget report, to realise that another 20 billion is not available for fiscal stimulus. I thought that that was where the Liberals stood. Only a fortnight ago, we had an exchange in the previous debate where the hon. Gentleman ruled out fiscal stimulus.

Vincent Cable: indicated dissent.

Kenneth Clarke: Well, I tackled the hon. Gentleman on his tax proposals, and they were redistributive tax proposals whereby the rich were going to pay for tax cuts for the poor. I think that, rather like in the case of the Government, that is more electoral than economic in its objectives; that is debatable. In any event, he ruled out fiscal stimulus and has suddenly become a convert to it.

Vincent Cable: Let me correct the right hon. and learned Gentleman; perhaps I was not clear enough in my speech. Fiscal stimulus comes from two sources: first, from the fact that people on low incomes spend a significantly higher percentage of their income than those on high incomes; and secondly, from public investment, which is over and above any redistribution in the tax system.

Kenneth Clarke: I would like to hear how much extra public investment the hon. Gentleman is talking about. Some of the public investment has just been pork barrelalthough I have to say that I am grateful for the current proposals for dualling the A46. His tax proposals are marginally stimulating if he is right that some people who pay high tax save more and others on lower tax would spend slightly more, but he was not putting that forward as a fiscal stimulus, and he was prudent not to do so.
	Many people will dilate on the appalling scale of the fiscal gap that is exposed now that we have up-to-date figures. If the Government had been a trading organisation, they would have been obliged a long time ago to update the ridiculous Budget forecasts that they put out a few months ago. The Prime Minister should be ashamed of himself for getting all his Ministers to repeat the 38 per cent. figure for debt to GDP ratio, which has not even kept up with the Office for National Statisticsit is a completely political figure. The comparisons with other countries are made on a completely different basis from the Maastricht-based accounting system on which the Europeans approach this matter. On the basis of figures used by any other country, we are already at about 60 per cent. debt to GDP ratio.
	What is worse is that everything shows that the situation is deteriorating. We are not talking about how to pay for the VAT reduction, which is what the public have been told. We are faced with paying for years and years of having run mounting deficits when the current Prime Minister was Chancellor. We are also faced with the rapidly deteriorating position that the recession is beginning to cause, which will get worse as it goes on. The judgment about risk is quite clear.
	Everyone knows that my preference for fiscal stimulus, if we could afford it, would be a VAT reduction, but I do not have time to argue that case. All possible approaches have upsides and downsides, but VAT reductions have a bigger impact on big ticket items such as cars, furniture and carpets, particularly when we approach the magic period in which the temporary VAT reduction is about to go up again. I have no doubt that had the Chancellor been allowed to print the figure that the Treasury wanted to print, to try to make the future more credibleit was going to put VAT up to 20 per cent. by the time we got to 2012that would have given an even bigger stimulus to spending. Neither do I doubt that taxes will go up substantially when we get there.
	As usual, I have used all my time, and have not been able to go into detail, so I shall conclude. At the heart of this issue is the condition of the banks. All democratic politicians will spend the next two years denouncing bankers, who have behaved badly in the past, but they are not on some sort of strike for malicious reasons. Instead of getting them in just to shout at them, we need to get them in to explain why the first package has not worked. The recapitalisation is too expensivefar more than anyone else'sand so are the loan guarantees. The shape of the package needs to be fixed. That is what needs to be done now.

Geoffrey Robinson: It is a pleasure to follow the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), although I cannot I agree with everything he said. He started off well by setting a grave tone for the debate, because there is a danger that we in the Houseand, indeed, the countryunderestimate exactly the size of the problem that confronts us as a result of this international crisis.
	Perhaps remarkably, I was in the Labour party's research department in 1967 when we had the financial crisis of devaluation, which I remember well, and I was in the House in 1976 when the International Monetary Fund came in. I remember even more vividly, however, the recession of the early 1980s and what it did to the west midlands, which was nothing to laugh at. It devastated the manufacturing base in my constituency. The 1990s were not much better. The hon. Member for Twickenham (Dr. Cable), with his usual omniscience in these matters, which accompanies his gift for prescience, pointed out that borrowing as a percentage of GDP in the early 1990s was about where we are now. That is probably a good parallel. Although the right hon. and learned Member for Rushcliffe did a lot to correct that in his years in the chancellorship, he did not bring it back into balance.
	The current situation is graver than those events, and we must have unprecedented measures that are commensurate with it. We are looking at an unprecedented level of borrowing and an unprecedented combination of the credit crunch, the banking failure and a prospective economic downturn.

William Cash: Will the hon. Gentleman give way?

Geoffrey Robinson: I shall give way in a short while. Let me just finish this point.

Frank Field: Is it not a fact that Labour Members and some Opposition Members feel that the Government should make every sensible move that they can to prevent this downturn from becoming a rout? I want to ask about one aspect of the Budgetmaking proper compensation for the 10p tax losers, which the Government have not done. Should they need to create further stimulus, they should single that group out for special attention.

Geoffrey Robinson: I am grateful to my right hon. Friend for his comments. He will recall that I opposed the move when it was first announced, before it was implemented. One of the silliest things that the Government have done has been to persevere with it. We should all acknowledge that my right hon. Friend the Chancellor has put things right. He has undertaken to correct the matter, and I am pretty sure that he will, but that should absolutely be a priority.
	The situation is unprecedented. It is a failure across all fronts of Government and private sector activity, as well as internationally. The depth of it is unprecedented, and it is right to use all the levers of government to correct it, which is precisely what the Government are striving to do. The restraint on public expenditure to which the hon. Member for Twickenham rightly drew attention is important. We cannot exempt public sector investment from that. As we come out of this recession, no area of Government expenditure will be exempt from severe restraint. We must prioritise, particularly in relation to investment.
	I am pleased to agree with several right hon. and hon. Members that social housing should be an unqualified priority. We need to take the same approach with housing associations. They have their difficulties, but they are prepared to advance moneyI speak for the large social housing organisation, Orbit Group, which has its headquarters in my constituency. Housing associations can spend their share of the 8.7 billion programme, but they will need some subsidy, because the homes will be built for rent, not for purchase. The cash flow profile for rent is less advantageous than it is for purchasing, but we hope to recoup that when the houses come up for purchase. The associations that I have spoken to are prepared to share with the Government the profit on eventual sales, when the houses come up for purchase, so that the Government can recoup some of the subsidy that they have had to invest. I urge my right hon. Friend the Chancellor, or one of the Treasury team, to engage in a serious dialogue and to pull forward that advanced investment as part of the 8.7 billion. That should be an unqualified priority.

William Cash: The hon. Gentleman talks about new investment, but that money has to be found. As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) has pointed out, there is a vast amount of as yet undisclosed borrowing. Does the hon. Gentleman agree that the contingent liabilities to which I referred in my earlier exchanges with the Chancellor represent a horrendous picture? Not only are we running at 1 trillion, as disclosed by the net public sector borrowing, but when we add in the Maastricht arrangements that my right hon. and learned Friend mentioned, we get up to 1,258 billion. We then have to add public sector pensions, Network Rail, the whole issue of the banking arrangements, including those for Bradford  Bingley, and nuclear decommissioning, so we end up with a figure that is about twice the amount that has been disclosed. In other words, we will not find the investment, because the money simply is not there. We are talking about 2.5 trillion.

Geoffrey Robinson: I think that I shall content myself with the answer that the Chancellor gave to the hon. Gentleman. The numbers that we are dealing with are challenging enough without our having to indulge in the apocalyptic visions in which the hon. Gentleman is such a specialist.
	The Government are giving the right help to families, children and pensioners in the general field of social housing, and for the associations in particular, and through the 8 billion package for small businesses. That makes the Opposition's position all the more incomprehensible. They refuse to face the situation that we are in. We understand that they are anxious to oppose, as that is their job, and to make their party political points as cheaply as they do. That is part of opposition, and that is accepted, but it is not acceptable or understandable that they content themselves with doing just that and with the need to get the banks lending again, although that is vital. That is not a position to take. The Opposition will be credible, acceptable and convincing to the country only when they come up with their own package to address the situation.

Jim Cunningham: I am sure that my hon. Friend recalls that he and I went through the 1970s and, particularly, the 1980s and the 1990s, under the previous Conservative Government. Does he not remember what happened to the west midlands at that time, when manufacturing and a whole range of services were devastated? We inherited a debt, and people were paying 50p in the pound as a result of that Government's legacy. The Conservatives have now failed either to confirm their previous policies or to give us new ones.

Geoffrey Robinson: I could not agree more with my hon. Friend, who is a fellow Coventry Member. I think that he was in industry at that time, coping directly with those who were being hit by all that. I was in the House, and every day I attended and found that another factory had gone under. It was the most terrifying situation. That was happening because, at precisely the point at which we entered that recession, Government expenditure was cut, thereby doubling the recession's effect. I entirely agree with Opposition Members who have made that point. We did not have 3 million unemployed; after the fiddling of the figures on incapacity benefit, we were looking at more than 4 million unemployed. That was the reality of the recession that the Government of that time quite unnecessarily put us into.
	Given the scale of the problem today, we need a cohesive and coherent national effort to confront it. When we get through the party battles that will no doubt be fought in the House over the coming months about the Government's package, we must not lose sight of the fact that we have a mountain to climb. That will require an effort from everyone. It is in that context that I look at the increase in the top rate of income tax. I believe that the country will respond to the difficulties, because we always have. We faced the war. People say that this is not a wartime situation, but the scale of the problem involved in eliminating this debt is similar in many respects. People will respond if they believe that the burdens being shared are being fairly distributed. It is in that context that we are asking the best-off to make a bigger contribution. I can see no objection to that, when we know that we face several, perhaps many, years of severe restraintcertainly for the medium termon living standards and public expenditure, as well as the prospect of unemployment for many, and even repossession.

Graham Stuart: Will the hon. Gentleman give way?

Geoffrey Robinson: No, I have given way many times. I am sure that the hon. Gentleman agrees that it would not be fair on other Members if I did so again.
	The Government are absolutely right in all that they propose. Everyone agrees that getting the banks lending again is a vital part of the solution, but for Lord Lawson yesterday and Opposition Members today to plead that, if only we could get the banks to lend again, all our problems would disappear is implausible and disingenuous. It just is not right. It is important to do that, however, and it seems to be the one thing that the Government, with determination, can do. It is within their power. We own the Royal Bank of Scotland, and we are a major shareholder in HBOS. It is within our power to achieve something with those banks; we do not have to argue with them about it. I am sure that they will agree to it. I am not saying that we should go straight for issuing forceful directions. It is best to go with the grain and to get the directors behind us, so that they share in the national effort. Of course it will mean a restraint on dividends, if they are going to lend more than they might think it prudent or right for each individual bank to do, but we need a coherent, cohesive national effort in which everyone takes part and shares the burdens equally. It is therefore right to introduce an increase in the top rate of tax.
	I would like to think that, at some point, the Opposition will give us a believable package of measures that they would like to introduce. If they do not, they will be abandoning their principal role as an Opposition, which is to put up an alternative policy to that of the Government. For the foreseeable future, however, I do not believe that there is an alternative, and I urge everyone to get together and push ahead with the policies that we have. If we are determined enough, if we demonstrate enough leadership, and if we stick with what we have said and urge restraint on public expenditure as we come out of the recession, I believe that we can succeed.

Peter Lilley: It is a great privilege to follow the hon. Member for Coventry, North-West (Mr. Robinson), who speaks with great authority on these matters. I respect everything that he said, and I agree with some of it.
	We owe a debt of gratitude to Mr. Speaker for granting us this three-hour debate, which was the maximum time that he could grant us.
	We must consider the scale of the Budget measures announced on Mondaywhich dwarf anything that I have known in real Budgets over 25 yearsand the calamitous state of the public finances that was therein revealed. Given the gravity of the economic situation, our constituents would have found it positively incomprehensible if Parliament had not debated the measures that we are discussing for this brief and inadequate period today.

Geoffrey Robinson: indicated assent.

Peter Lilley: I see that the previous speaker agrees with me.
	Is there any Member in the House who would support and justify the Government's refusal to allow a debate on this Budget? There is none, and I hope that hon. Members will make their feelings known to the Leader of the House, who should be pressing on our behalf

Simon Hughes: Will the right hon. Gentleman give way?

Peter Lilley: Only if the hon. Gentleman is going to do that. Is he going to justify not having a debate?

Simon Hughes: indicated dissent.

Peter Lilley: Then I will not give way.
	Given the inadequate time allocated for this debate, I shall make just a few brief points. Unless we correctly diagnose the causes of our problems, we will not get the right cure. It is therefore extremely worrying that the Chancellor and the Prime Minister persist in the self-serving delusion that the cause of our problems lies exclusively in the United States of America. It was not America that caused us to have the biggest boom and bust in the housing market. The excessive lending, which exceeded not only that of America but that of the rest of the world, was a British-made problem. The failures of regulation by the regulatory system introduced by this Government were at least as severe as those in America. It was those mistakes, and not sub-prime mortgage lending, that brought down Northern Rock, then Bradford  Bingley and finally HBOS. It was the Government's policy of spending more than we were raising in taxes that led to the deficit in the public finances and the corresponding deficit in the balance of payments, thereby necessitating the huge devaluation in the pound that we have seen recently. I cannot see how any of the measures announced by the Government relate to those fundamental, underlying causes of the problems that we face.

David Drew: I am interested to hear what the right hon. Gentleman is saying about public spending. I do not know on how many occasions he has made it clear in his constituency that he opposes this Government's investment in public spending. As a Labour Member, I congratulate them on that investment. Of course it has to be paid for, but does the right hon. Gentleman not agree that we should argue the case for higher public spending?

Peter Lilley: Almost all my constituents who discuss this issue with me tell me clearly that the Government have been spending more than we can afford. They regret that, and of course they would like more spending, if it could be afforded. When it is clearly unaffordable, however, they condemn the Government for that practice; and when that spending leaves us with this kind of problem, which puts my constituents' jobs at risk, they are not going to put doctrines about public expenditure above the security of their employment.

Christopher Huhne: Will the right hon. Gentleman give way?

Peter Lilley: I should like to make some progress, if I may.
	The second issue that I want to address is the Government's optimism that the fiscal stimulus, as they call itincreasing expenditure while reducing taxationwill be expansionary. I devoutly hope that it will prove to be expansionary. I hope it will work. However, most people, as well as the Government, believe that its impact is likely to be quite small. The right hon. Member for Bolton, West (Ruth Kelly) said that it would reduce the impact of the recession by about 0.5 per cent. of GDP. If the Government are convinced that that expansion will work, and that we face a severe contraction, why have they not done more? If there is a limit on affordability, why did they not double the cut in VAT for half the time? A 5 per cent. cut for six months would probably have had a more stimulatory effectfor the reasons spelled out by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke)and we would have known sooner whether that was going to work or whether we would need to switch to other measures.

Nick Palmer: Does the right hon. Gentleman accept that a 5 per cent. cut, to 12.5 per cent., would require consultation with the European Commission, and would have taken longer to implement?

Peter Lilley: The hon. Gentleman is right: we are forbidden, under the present laws, to reduce VAT to under 15 per cent. That is absurd, and we should have asked for a waiver from that requirement. We should not allow that to be a restriction at a time of national emergency. However, it is significant that, by the modesty of their package, the Government recognise that even these measures are at, or even above, the maximum that we can afford, and that more might have had a negative effect.
	We need to consider in what circumstances a budgetary stimulus or fiscal expansion has a positive effect, and in what circumstances it has a negative effectthe Government clearly fear the latter if they do more. Helpfully, the European Central Bank and the European Commission have studied the research done on all the fiscalor so-called Keynesianmeasures undertaken by different Governments in the past few decades. They come to some striking conclusions. They say that when Governments deliberately increased their borrowing to stimulate the economy, the effect of such expansionary measures was, at best, small. On half the occasions, the effect was the reverse of the Government's aim. My right hon. and learned Friend pointed out that we know from British experience that that is often the case. In 1976, we had what the Keynesians would call a contraction. Under the influence of the IMF, we cut spending and raised taxation. The effect was immediate. As Lord Donoughue said on Monday last weekand he was a member of Callaghan's Cabinetthe economy started recovering the next year, much more rapidly than expected. In 1981, 364 economists said, at what subsequently turned out to be the nadir of the downturn, that the measures that Lord Howe introduced in his Budget would accentuate the downturn because he raised taxes, cut spending and reduced borrowing. In fact, that marked the beginning of a sustained period of rapid growth.
	The documents produced by the European Central Bank also show that the opposite has happened. Governments introduced what they thought would be expansionary measures, but they had a contractionary effectthey are called contractionary budget expansions. That is our worrythat the Government have done too much and it will have a contractionary effect. The studies show that such measures are most likely to have the opposite to the Keynesian effect when the Government start with a high level of borrowingprecisely the position we are in. Other countries that have managed their finances prudently and have low borrowing are in a position to take expansionary measures, and I hope that they do so and create markets for us to grow through export-led growth, but we are not in a position to do that on any scale.

Christopher Huhne: The numbers suggest that the debt position is not as alarming as the right hon. Gentleman says. The current public sector net debt is 36.3 per cent. of GDP. In the last year of the Government of which he was a member, it was actually 42.5 per cent. Is he saying that circumstances today are so different from the circumstances that the right hon. and learned Member for Rushcliffe (Mr. Clarke) inherited, with a fiscal expansion under that Government of 3 per cent. of GDP between 1990 and 1993-94?

Peter Lilley: I was not trying to make an absurd party political point like the hon. Gentleman: I was quoting the European Central Bank and the European Commission studies of the experience of other countries. They have shown that when other countries have tried to launch a fiscal expansion on the back of a high level of borrowing or deficitand the hon. Gentleman knows the difference between a deficit and the inherited debt of previous Governmentsthere is a danger that it actually leads to contraction. Why does it do so? There are three reasons. First, it undermines confidence. People think, Gosh, the Government's finances are already pretty shot through. If they are going to borrow even more, we had better get out of here.

Christopher Huhne: Will the right hon. Gentleman give way on that point?

Peter Lilley: The hon. Gentleman has just made one silly party political intervention: he does not get a chance to make a second.
	The second reason is the possible effect of the risk premium, even for Government borrowing. My right hon. and learned Friend made the point that the Government now have to pay more to borrow than private companies, and even French banks. The third reason, which is not often mentioned, is the fear among the general public that the additional money they receive from the Government borrowing more will have to be paid back through increased taxes. The public therefore save that money to pay the taxes in future.
	I have always found the idea of Ricardo equivalencethat the general public can estimate the likely tax effects of borrowing in the distant future and predict on whom they will fallvery unlikely. But in the present circumstances, when the Government have spelled out that the short-term boost will be followed by specific and immediate increases in taxation, and when we know from what they have been trying to hide that any uncertainty is only that taxes may be even higher than so far revealed, it is all too likely that people will increase their saving to meet their future tax bills, thereby negating the effect of this attempt at expansion. Having said that, I hope that it works.
	The Government are relying on an increase in taxes, and they will withdraw the personal allowance for people who earn more than 100,000or 1 for every 2 of extra income. In effect, that will restore a 60 per cent. marginal tax rate for income above 100,000. In the past, that had a negative yield. We got more money when we reduced the top tax rate than when we maintained it. The Government have learned nothing and forgotten everything, and I hope that they will give us more time in the next Session to rub their noses in what is a very dangerous and risky Budget.

Nigel Griffiths: The right hon. and learned Member for Rushcliffe (Mr. Clarke) was right to identify a prime source of the crisis that so many economies are suffering as the banks and banking malpractices. As a Member for Edinburgh, which is of course a major banking centre, I am acutely aware not only of the role of the banks, but of the consequences on jobs, general lending and people's lives.
	As a former Minister for construction, I welcome the proposals of my right hon. Friend the Chancellor to draw down spending and ensure that construction projects are started and continued. That will give some relief to what is clearly a hard-pressed sector of our economy.
	I am afraid, however, that I cannot take lessons on housing policy from the right hon. Member for Hitchin and Harpenden (Mr. Lilley). He will remember that, under the regime of which he was a very strong part, 2.5 million houses were hit by negative equity, and that 76,000 were repossessed in 1991. Last year, the repossession total was 18,000, and the present estimate for this year is almost half the Conservative figure. That answers the right hon. Member directly.
	The right hon. and learned Member for Rushcliffe was willing to face up to the source of the crisis. It may be unpalatable to his Front-Bench team, but he is wise enough to know that the crisis started in America, and is having a global impact

Kenneth Clarke: indicated dissent.

Nigel Griffiths: Well, he is shaking his head, but he does not seem to want me to give way. His Front-Bench team believes that his account detracts from attacks on the Government for being the source of crisis. That is patently ridiculous

Kenneth Clarke: Will the hon. Gentleman give way?

Nigel Griffiths: Of course.

Kenneth Clarke: My view is that nothing happened in America that did not happen here, and that nothing happened here that did not happen in America. Our worst mistakes were a failure of regulation and our bad public finances. They are the particular features of the crisis here, but should not the hon. Gentleman be cautious about putting forward figures for repossessions and the rest of it? Has it not occurred to him that we might be in this recession's early days, and that 2009 might be very much worse? Does he really believe the Government's reassuring message that we will resume economic growth in the later half of 2009? All their forecasts are based on that projection, but I know of no living person outside the Government who believes that that is credible for one moment.

Nigel Griffiths: And nor do I believe that the right hon. and learned Gentleman can compare in any way the scale of what has happened in Britain or elsewhere to what has happened with Fannie Mae or Bear Stearns, or to the collapse of Lehman's or the present crisis at Citibank. Those institutions' power and financial clout are bigger than major economies such as the UK's.
	The Conservatives seem reluctant to face up to the fact that in 1997 the UK's GDP per head was the lowest in the G7. People in Britain were poorer and had less to spend than people in America, Japan, Germany, Italy, Canada or France. Now, of course, our GDP per head is the second highest, after the US. In the past decade, the UK has been the only G7 country to escape recession, and in that 10 years it has been the only major industrial economy to increasefrom 7.5 per cent. to 8.25 per cent.its share of global services. While Government borrowing peaked at 7.8 per cent. under the Conservatives, we brought it down to 1.2 per cent., and Labour's highest borrowing in the past decade was in fact lower than the average Conservative borrowing of 3.4 per cent.

Stewart Hosie: The hon. Gentleman makes a point about the growth in our service economy and in our exports of services, but I am sure that, for the sake of balance, he will also concede that there is a deficit of 87 billion in our trade in goods. On his Government's watchand he used to be an unpaid part of that Government1 million manufacturing jobs were lost, which led to the suppression of GDP growth by about 0.5 per cent. a year over the past five or six years.

Nigel Griffiths: Manufacturing output has of course increased dramatically in the past decade, as we have gone from being a relatively inefficient manufacturing country to a highly efficient one. There has been a marked cut in the numbers of jobs in every major industrial country, but this Government have done more to obviate that than any other Government would, or could, have done.

Tom Clarke: Will my hon. Friend give way?

Nigel Griffiths: No, as I am afraid that I am constrained for time. I hope, Mr. Deputy Speaker, that my right hon. Friend manages to catch your eye later.
	I turn now to the national debt. Again, at 42.5 per cent., it was higher under the Conservatives, as was pointed out in the earlier helpful intervention. Now, at 37.7 per cent., it is lower than the figure for the US, Japan or the euro area. In the 1990s, two thirds of all public spending went on servicing debt and the costs of unemployment. This Government have freed up 23 billion to invest in public services that used to go on servicing the debt and paying for unemployment. That sum is equivalent to half the schools' budget.

Graham Stuart: Will the hon. Gentleman give way on that point?

Nigel Griffiths: I will.

Graham Stuart: I am extremely grateful, but will he explain to the House what share of Government expenditure will go on servicing the debt when it has been doubled?

Nigel Griffiths: That has obviously been made clear in the account: we had the statement and we are having this debate because we recognise the severity of the problem, but we are not going to take lessons from a party that plunged us into two recessions, caused 76,000 people to lose their homes and oversaw a crisis in manufacturing the like of which this country had not seen in history.
	On business competitiveness, the Government have taken positive steps to ensure that our economy is strong. At 28 per cent., our corporation tax is the lowest in the G7it was 33 per cent. under the Conservativesand that has helped to create 750,000 more businesses, 90 per cent. of which paid 10 per cent. tax, which is one of the lowest rates in the world.

Andrew Pelling: Will the hon. Gentleman give way?

Nigel Griffiths: No, I am not giving way again. No one is in any doubt about the scale of the economic problems. Just a few short months ago, when my right hon. Friend the Chancellor warned that the UK economy faced problems not seen for 50 years, the shadow Chancellor got to the TV studios as quick as he could to denounce that. Now we know that my right hon. Friend was looking ahead to the problems that we now face, and so was in a better position to measure them up and take the steps that he announced on Monday.
	The House will not have forgotten that in 1997, our poorest senior citizens had just 69 a week to live onmore than 50 a week less than they do now. With that 50, the Government have lifted 1.9 million senior citizens out of poverty. The country has not forgotten that in 1997, spending per pupil was less than 3,000. It is now 5,430. Investment in school buildings, including roofs, more than doubled, and we now have 40,000 more teachers in our schools. In our NHS, we have 130,000 more nurses, doctors and consultants, and Labour's investment in our health service means that 240,000 people are alive today, recovering from cancer and heart disease, who would simply have died had Tory levels of investment continued.
	There has been a decade of growth, a decade of cutting public debt, a decade of lowering taxes, a decade of creating 3 million more jobs, and a decade of investing in public services. The hon. Member for Twickenham (Dr. Cable) made a number of telling points about the decades of failure under previous Governments, but today, the shadow Chancellor showed that, having trawled the record for lessons that the Conservatives could learn, he has found none. As for solutions, he proposes none. He now proposes to do virtually nothing, and that is not an option.

Michael Jack: If there was a prize for political irrelevance, the speech of the hon. Member for Edinburgh, South (Nigel Griffiths) would get the accolade of the year. Significantly, his All Our Yesterdays way of looking at the economy managed to ignore one trend of the past few years: the build-up of debt that has left this country in a singularly difficult position when it comes to coping with the current economic downturn. If he wants to be honest about figures, he should not be so selective in those that he uses to make his case.

Oliver Heald: I do not know whether my right hon. Friend agrees, but I am sure that the speech that the hon. Member for Edinburgh, South (Nigel Griffiths) gave used to end with the line, And we have ended boom and bust!

Michael Jack: My hon. Friend makes a point that I missed out in my peroration. I totally agree with him. I wanted to start with the words of the Prime Minister on 17 November. When he came back triumphant from Washington, he told us that those members of the G20 who were at the conference had agreed to do certain things. He referred in the House of Commons to the
	full disclosure of toxic assets[ Official Report, 17 November 2008; Vol. 483, c. 22.]
	The idea was that that disclosure would be planned for, and revealed, by 31 March next year, but that is too late; it is too long a period. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), a former Chancellor, made the point that we need to have some idea of where we are with the toxic debt in our banking community, but that has not been addressed properly, either on this side of the Atlantic or in north America. However we choose to clean up the mess of toxic debt in banking, clear it up we must if we are to get proper banking relations to prevail.
	If LIBOR and the bank rate are to come into touch with each other and money is to become more affordable, that problem must be addressed. I have not heard anything from the Government to suggest that they are seriously addressing that issue. All that we hear is that the bankers have been called inthe Government are talking to them and trying to persuade thembut nothing happens in the real world to help small businesses desperate for money that they can afford, or to assist medium-sized businesses with their cash flow or, indeed, to help large businesses so that they can carry on the job of raising working capital at an affordable price.

John Redwood: One problem is that the Government themselves do not even follow transparency. In the pre-Budget report, which is a large document, there are no proper figures on Northern Rock or RBS. I cannot get the accounts on those banks from the Vote OfficeI have to get them elsewherebecause the Government have no intention whatsoever of revealing their own transactions to the House.

Michael Jack: Indeed.

Philip Dunne: Further to the point made by my right hon. Friend the Member for Wokingham (Mr. Redwood), there has not been a single reference to the fact that, only last week, Northern Rock decided to allow its principal securitisation vehicle, Granite, to go under and go into default asset recovery. As a consequence, the Government have sold a share in their own bank worth 3.3 billion, which is much less likely to be recovered, and it will take many years to do so. Where is the transparency on that toxic asset?

Michael Jack: My right hon. Friend the Member for Wokingham (Mr. Redwood) and my hon. Friend the Member for Ludlow (Mr. Dunne) both make the point that we need a great deal more transparency, and that action is required to address the question of banks' balance sheets. Unless banks have the confidence to lend to one another, normal monetary policy will not be resumed.
	Much has been said about the way in which we might try to encourage the economy to overcome the downturn. I agree with my right hon. and learned Friend the Member for Rushcliffe: I think that that is going to take much longer than the Treasury's heroic idea of one year, then we will be out of it. The Treasury have forgotten the failures of their own system of forecasting. If we look at successive Red Books over the past few years, we will see a table of endless adjustments of previous projections of tax receipts and, indeed, borrowing, which shows that Treasury forecasting has entered an era of inaccuracy. The Chancellor would be unwise to dismiss many of the commentators who have commented on the likely severity of the downturn. There is a human trait that the House of Commons needs to address, as it is easy to get caught up in the technicalities of economics and monetary and fiscal policy, and forget the fear factor and the lack of confidence among members of the public. Why have retail sales declined? Unemployment has fully to bite in this recession. There are about 25 million people who are still in employment, but many of them are frightened of what might happen. They are genuinely uncertain about the future, and they are frightened when they hear that Government borrowing will rise to 118 billion. They know that that is a big number, and that somebody will have to pay for it. While there is that uncertainty, they will not spend.
	Most people gain confidence from knowing that the price of their housetheir single biggest assethas some kind of value. Only today in the Tea Room, however, we saw a headline saying that houses in London are to be sold with a further 100,000 off their asking price. When people read that, they do not look beyond the headlinethey know that it is a frightening time, so they are cautious with their money. That is why I am concerned that the pre-Budget report has done nothing whatsoever to get the fundamental housing market going. There have been comments on the subject of social housing, but the Government should recognise that there may be an opportunity, particularly for first-time and young buyers, to get into the housing market. Measures could be taken including, for example, a further rise in the stamp duty threshold to 500,000. The number of mortgages for new lending has effectively dropped to an all-time low. Estate agents are lucky if they sell one house a week. Those are all factors that affect not just the housing market and people's confidence but the construction industry. If there was some movement, perhaps that would restore confidence in the economy.

Paul Farrelly: rose

Michael Jack: I will not give way, as I have already done so three times.
	The cut in VAT is but a temporary stimulus at a time at which prices are already falling. The real disappointment in the pre-Budget report is that no other options on fiscal stimulus were discussed. We have simply been told that the policy is 2.5 per cent. off VAT.
	I should have declared my business interests at the outset of the debate. One of the problems that businesses face is the cut in industrial buildings allowance, which was the price for the fall in corporation tax. However, if a business is not making a profit, such measures are irrelevant. What are the Government doing to maintain and stimulate industrial investment? There is effectively nothing in the pre-Budget report that deals with that.
	My right hon. and learned Friend the Member for Rushcliffe has discussed big-ticket items. Maybe there was a case for selective reductions in VAT, because companies will either consider the reduction in VAT as a benefit to their cash flow and keep some of it or use some of the money to reduce prices on one or two things. The 2.5 per cent. cut across the board for a limited period of time must be paid for by a substantial increase in borrowing, which estimates indicate will cost this country by 2014 the equivalent of increasing the basic rate of tax by 2.5p. That is not necessarily the best way to stimulate the economy.
	We should have had a thorough debate about the long-term alternatives to get the economy going. Unless the Chancellor of the Exchequer addresses monetary policy and at least gets normal service resumed, we will not know whether the Government have done too much or too little with fiscal policy. If there are too many variables, one does not know whether one's policy ideas will work.
	Particularly from the standpoint of north-west England, I urge the Chancellor to reflect on major defence contracts when he considers his public expenditure optionsI imagine that every penny of Government spending is currently under review. The aerospace industry in north-west England accounts for some 40,000 jobs. Many of the constituents of the right hon. Member for Bolton, West (Ruth Kelly) are involved in the aerospace industry, so she understands, and the same is true of the hon. Member for Ellesmere Port and Neston (Andrew Miller). I urge the Chancellor to make certain that projects such as Eurofighter are at least maintained both for their military importance and for their importance to the economy.
	The public in this country will not easily forgive what the Government have done. My right hon. and learned Friend the Member for Rushcliffe left the economy travelling in the right direction. The profligate spending by the former Chancellor, who is now the Prime Minister, has left us ill equipped to deal with a downturn in the economy. One of the things that worries me about the Chancellor's attitude of throwing bell, book and candle at the problem now is that none of us knows precisely what will happen in the future. This recession is uncharted waters, and I wonder what is left in the locker, if there are further shocks. I hope that the Chancellor will review alternative fiscal stimuli, because industry may need such help. The most important thing is to maintain people in employment, which is the cheapest and best way to maintain economic activity, but I am not certain whether the Chancellor's VAT cut will do that.

Andrew Miller: I will be brief, because the winding-up speeches are due to start at six minutes past 4.
	Following the intervention by my right hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett), I have been surprised by the way in which the official Opposition have derided the notion that the problems started in north America. The world has changed, and we now live in a world of instant communications where events spread very quickly. That applies to not only banking and commerce, but to many aspects of our society, and global events that begin with a pinprick will spread around the world very quickly in other areas, too. Anyone who has read anything about chaos theory will understand what I mean. That is why it is so importantno one from the Opposition has mentioned thisthat my right hon. Friends the Chancellor and the Prime Minister get on the global stage and argue Britain's corner and Europe's corner. If we do not do so, we will let down our country extremely badly.
	The hon. Member for Tatton (Mr. Osborne) and I have two things in common. First, we are both Cheshire Members, and I hope that he will reflect on what I say towards the end of my remarks, because some of his constituents work for companies in my constituency. Secondly, we both took a holiday in Corfu, but I shall not develop that point. Mine was a considerably cheaper version.
	I am also concerned to hear the surprisethe shock, horrorbased on the idea that my right hon. Friend the Chancellor did not look at dozens of ideas, and did not ask civil servants, officials and colleagues to present alternative propositions to him. Of course he did. We would be here lambasting him if there were evidence that he had not examined dozens and dozens of ideas placed in front of him.

Robert Smith: Will the hon. Gentleman give way?

Andrew Miller: No, because I have to sit down at six minutes past.
	My right hon. Friend the Chancellor was quite right to contemplate all the papers that were put in front of him, and I agree with him that the conclusion that he reached will probably have the greatest impact on the lower-paid families whom many of us represent. It is important for them in terms of their capacity to help stimulate the economy and in terms of their immediate needs, and we should support people that way.
	My next point is about industry. The right hon. Member for Fylde (Mr. Jack) made a point about aerospace, and I totally concur. It is vital that those large projects continue. The case that he explored is vital from the point of view of national defence and because of the importance of that aspect of manufacturing to the economy in the north-west.
	I also represent a manufacturing constituency that is dominated by petrochemicals and vehicles. The vehicle industry's position is different from the last time that we faced an economic downturn, because we are now in a global economya point that I made at the outset. Vehicles, like any other product and commodity, are now global products. The Vauxhall Astra, which is made in my constituency, is also made in several other countries, and its components are made globallyas far afield as Australia.
	We need to ensure that in finding a solution, we think globally, and I welcome the fact that Lord Mandelson has made a real commitmentsome people describe it as a conversionto manufacturing. He is meeting the Society of Motor Manufacturers and Traders, and that will be an important discussion. It has been well trailed that the SMMT will press for support through the European Investment Bank to ensure that proper support mechanisms are in place for industries such as the vehicle industry, which is so important to our economy, particularly in the north-west. I urge my right hon. Friend the Chancellor to give every possible line of support to the ongoing discussions, because, if in the worst case scenario, General Motors or Ford goes into chapter 11 bankruptcy, the consequences in Europe will be dire indeednot against the background of rubbish products, but against the background of high-quality products that have a future market and deserve protection.
	Finally, I should say that I have been somewhat surprised. Given that the Tories demanded this debate, I thought that we would hear some great alternative solutions from them. What I want to find out from the wind-ups is whether the Opposition are in favour of tax cuts now to boost the economy. Will they vote against the 60 payment to pensioners and the increases in child benefit and tax credit?  [Interruption.] Of course they will have time. Let us hear their views.

Robert Smith: rose

Andrew Miller: No, I will not give way.
	Does the hon. Member for Tatton think that the recession is good for the health, as his party's health spokesman does? Those are the questions that the nation wants answered. If they are to be a credible Opposition, they cannot just pontificatethey have to come out with policies that mean something to the hard-pressed people we represent.

Philip Hammond: Through you, Madam Deputy Speaker, I thank Mr. Speaker once again for asserting the right of Parliament to debate this Budgetfor that is what it isbefore its principal element comes into force next Monday. This is the debate that the Government did not want to have.
	We have heard from the Conservative Benches a reflection of the anger and bewilderment felt in the country and expressed in the media at how Labour has failed once again in its stewardship of our national financesmortgaging our futures and those of our children and grandchildren to try to secure their own. The Government are frittering away the golden legacy that they inherited from my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in 1997.
	The Government borrowed through the good years, when more prudent nations were piling up surpluses, and they ran a structural deficit when they should have been paying off debt. They have sheltered behind a bogus set of fiscal rules that failed to constrain reckless borrowing in the good times and was promptly junked when the going got tough. As recently as May this year, the Prime Minister was extolling the sustainable investment rulethat debt should not exceed 40 per cent. of GDP. On Monday, without a hint of an apology, the Chancellor told us that debt will now reach 58 per cent. of GDP, casually admitting that the Government will have doubled our national debt to 1 trillion. That is one third higher in real terms than our national debt when we had just finished fighting the second world war.
	Over eight years, the Government have repeatedly projected a return to fiscal balance a few years down the line, and they have repeatedly been wrong. On Monday, they did so again in the pre-Budget report, learning nothing and forgetting everything. The Government project a short and shallow recession while the weight of expert opinion sees a longer and deeper one. The Government claim that Britain is well prepared, but all the evidence from the OECD, the International Monetary Fund and the European Union is that the recession here will be worse than that of any comparable economy. They forecast a rapid return to above-trend growth in 2011 on the basis of no evidence whatever. To gloss over the black hole in their numbers, and ignoring the warning from the right hon. Member for Bolton, West (Ruth Kelly) that revenues will be slow to recover, they assume in the pre-Budget report a fantasy acceleration of growth in Government revenue from 2.8 per cent. a year to 4.1 per cent. a year. That is 20 billion a year in revenue conjured out of nowhere by the manipulation of the figures.
	The markets have not been deceived, and nor should the people be. The cost of insuring British Government debt has increased tenfold, and in the past week it has gone up by 50 per cent., three times the rate for German Government debt. As my hon. Friend the Chancellor observed, thanks to the Government's profligacy

George Osborne: Shadow Chancellor.

Philip Hammond: I am sorry; I am getting ahead of myself.
	Thanks to the Government's profligacy, the full faith and credit of the United Kingdom is now rated less highly by the markets than the promises of companies such as Nestl and British Petroleum. Sterling has declined 25 per cent. against the dollarmore than the 1967 pound in your pocket devaluation and more than the 1992 exchange rate mechanism devaluation. And what is the Government's solution? Their big plan, their answer to a recession caused by reckless borrowing and excessive debt, is more reckless borrowing and still greater debt. Their answer is to fund temporary cuts in VAT at a time when prices are falling anyway, and when the Prime Minister and the Governor of the Bank of England are warning against the risks of deflation, followed by increases at the very point when the economy is supposed to be coming out of recession and will need all the encouragement it can get. Borrow now, pay later.

Christopher Huhne: I am puzzled by one thing the hon. Gentleman said, given the powerful case that he is making about the problems in the public finances. Why does he think that the bond market, which is far deeper and more liquid than the credit default swap market, has seen a 0.5 per cent. fall in the 10-year bond yield over the past month? Is that market getting it wrong where the credit default swap market is getting it right?

Philip Hammond: Puzzled and confused seems to be the Liberal Democrat position on many things. There are many other factors driving the corporate bond market, but only one factor drives the sovereign debt credit default market, which is the creditworthiness of the United Kingdom Government.
	This tax policy is driven not by the economic cycle, but by the electoral timetablea 20 billion tax cut before the general election financed by a 40 billion tax increase afterwards. That is just the bit of the iceberg we can see. We have heard during the past 24 hours that the Treasury's plan was to use more realistic assumptions, and to announce a tax increase package including an extra 5 billion a year of VAT after 2011 by introducing an 18.5 per cent. rate. Clearly, the Prime Minister, who promised us transparency, did not approve of such candour.

Rob Marris: Will the hon. Gentleman give way?

Philip Hammond: I am sorry, but I have not got time.
	The Chancellor tells us that he considers all options before a Budget, but he did not test the credibility of the House by suggesting that for every one of those options, a fully worked-up explanatory memorandum is produced and signed on the behalf of a Minister by a civil servant.
	The Government's solution is increased taxes for everyone earning over 19,000 a year. We have heard from the delusional tendency on the Government Benches about the delights of a higher top tax rate for high earners, but we have heard from several hon. Members this afternoon that the Institute for Fiscal Studies estimated that the net effect of the new top rate will be approximately zero, meaning, as usual, that middle-income earners will be left to foot the bill as the Government seek to fill their black hole with permanently higher council tax, permanently higher fuel duty, permanently higher alcohol taxes and permanently higher national insurance contributions. There will be a tax on jobs for employees and employers alike.
	As my right hon. and learned Friend the Member for Rushcliffe pointed out, all that is to pay for a short-term tax cut that Britain cannot afford, and that will not save us from recession, business failures, soaring job losses and home repossessions. It will not save us because, as my right hon. Friend the Member for Fylde (Mr. Jack) pointed out, the reason people are not spending is not because goods are too expensive to the tune of 2.5 per cent. but because they are over-indebted, worried about their borrowing capacity and their creditworthiness. Their houses are shrinking in value, their jobs are at risk and they do not know whether they will be able to borrow to fund the big-ticket items that they want. The Government say

John Spellar: What does the hon. Gentleman say?

Philip Hammond: I will tell you. They say that we will do nothing. They are wrong, and they know that they are wrong. Doing nothing is not an option, but neither is doing just anything and borrowing to pay for it. A temporary tax cut when prices are falling, funded by promises of tax rises in the recovery, is as good as doing nothing. What is needed is a targeted response to the real underlying problem, which is the credit crunch. The CBI and the Governor of the Bank of England agree that getting lending going again is the critical testfar more important than a temporary cut in VAT.
	My hon. Friend the shadow Chancellor set out this afternoon a specific proposal for the creation of a state credit insurance institution to guarantee loans to businesses in order to get credit flowing to save jobs and businesses in this Labour recession. We have already announced a raft of targeted measures to help families and businesses and save jobs, including a 2.6 billion package to support employers taking on new staff, a cut in national insurance contributions for the smallest employers, a council tax freeze and, most importantly, an automatic right for smaller and medium-sized businesses to defer their VAT payments by six months. That would pump 10 billion of working capital into the corporate sector of Britain as of right, not after a mountain of form-filling and a delay intermediated by the banks, which is what the Chancellor's small firms loan guarantee scheme expansion would involve. That is a coherent package that would not place a tax bombshell under Britain's future.
	The Government have made their choiceshort-term tax cuts before an election, followed by a massive tax hike after the electionjust as they did in the previous two elections. We have made our choice, too: fiscal prudence with a sustainable path for the growth of public spending and a focus on where the real problem lies, getting credit flowing again, and helping families and businesses in the meantime with properly targeted help.
	The Prime Minister said that he had abolished boom and bust, so he did not notice that the boom was based on a bubble and financed by a mountain of unsustainable debt. He deluded himself and the country into mistaking the creation of credit for the creation of wealth. We had the illusion of boom and now we have the reality of a bust. Now that the bubble has burst, his only answer, like a junkie reaching for one last fix, is to borrow still more, but he cannot avoid the truth. This recession was caused by excessive debt and we cannot borrow our way out of debt.
	The Prime Minister has planted a tax bombshell under the British people. The clock is ticking, but the British people are not fools. They know that Britain can no longer afford this Government. His fiscal rules are gone, his reputation is shattered, his economic policy is crumbling before our eyes and he no longer has the authority or the credibility to lead Britain through the economic challenges ahead. For years he has lived on borrowed money; now he is living on borrowed time.

Yvette Cooper: We have had a thoughtful debate, once we got past the early bombast from the hon. Member for Tatton (Mr. Osborne). The debate in all parts of the House has broadly been very thoughtful. Hon. Members have talked about the seriousness of the challenges that we face. We have toured the economic history, talking about Budgets from 1993, 1981 and 1967, and we even went back to Snowden. There is a broad consensus in all parts of the House that the events that we have seen in the world economy over the past 12 months have not been seen in any of our lifetimes. This week the biggest bank in the world had to be bailed out by the American Government. That is evidence of the sheer scale of the global problems facing every country in the world.
	Extraordinary times require extraordinary measures. Evidence of the extraordinary times is the fact that the right hon. and learned Member for Rushcliffe (Mr. Clarke), having long been an opponent of Bank of England independence, brought himself to support the Bank's role in the current events. As the right hon. Member for Fylde (Mr. Jack) said, there is great uncertainty. People are very worried about the economic events that they see around them. That is why the pre-Budget report is so important.
	Two things are clear from this debate. First, there is a big difference. We on the Labour Benches believe that we should act now to support the economy; the Conservative party does not. Secondly, the Conservative party is not prepared to take the tough decisions in the future to bring the public finances back into line after the problems caused by the recession.

Charles Walker: It is estimated that by the time we reach the end of this recession, this country's national debt will be 1 trillion. Can the Chief Secretary tell us how many zeroes there are in a trillion?

Yvette Cooper: We have set out the forecasts. We are increasing debt and increasing borrowing, because that is the right thing to do, as part of the 20 billion fiscal boost announced by the Chancellor, which includes cutting VAT, extra cash for families and pensioners, income tax cuts and speeding up investment to support jobs, as well as extra help for small businesses in particular, which goes considerably further than the measures that the shadow Chancellor has announced.

Peter Bone: rose

Yvette Cooper: I want to respond to comments made in the debate.
	We had a detailed discussion about the importance of the fiscal boost, which was clearly and well argued for by my right hon. Friend the Member for Bolton, West (Ruth Kelly), who pointed out the limitations of monetary policy at a time like this. Yes, we need monetary policy and action to support the banks and get them lending again, which is why the action of the Royal Bank of Scotland at the weekend has been welcomed as a step forward, and we do of course need to go further. The hon. Member for Tatton seemed to be calling for radical monetary policy; it sounded to me as if what he was actually calling for was an end to the independence of the Bank of England and for him to set interest rates instead.

Several hon. Members: rose

Yvette Cooper: We believe that now is an important time to use fiscal policy, as do other countries. In Europe, where major countries' debt levels are higher than ours, fiscal action is being supported. The President of the European Commission said just this morning that he is supporting a 160 billion economic recovery package across Europe. In America, for Republicans and Democrats alike, their debt is higher than ours and their borrowing is higher than ours. Yesterday, President-elect Obama announced a fiscal boost of more than 3 per cent. for the American economy, when he said:
	The consensus is this, that we have to do whatever it takes to get this economy moving again.
	Germany, Spain, the US, Australia, Japan, China and other countries across the world are all introducing fiscal boosts for their economies because they know that there is too much at stake for Governments to stand back and allow the recession to take its course. They all know that the nature of the shocks to the financial system, alongside falling inflation, means that monetary policy is not enough. Even the International Monetary Fund has said [Interruption.]

Several hon. Members: rose

Madam Deputy Speaker: Order. It is entirely up to the Chief Secretary to decide whether she wants to give way.

Yvette Cooper: The IMF said:
	If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it's now.

Kenneth Clarke: My understanding of the background to the PBR on this point is that the Treasury wanted to put in credible figures for two or three years ahead to show how all this was going to be paid for before returning to stable policy, but Downing street did not. Is it not the case that more tax increases were originally going to be put in than eventually appeared and that they have been replaced by wholly incredible growth forecasts, supposedly getting us back to 3 per cent. growth by 2012?

Yvette Cooper: The right hon. and learned Gentleman is talking nonsense. As the Chancellor said, we looked at a range of options and decided on the fairest options necessary to bring borrowing back down. That is the right thing to do to support a fiscal policy and a fiscal boost that are supported across the world. That is supported by the Bank of England, the CBI, the Federation of Small Businesses, the TUC, the national institute and the Institute for Fiscal Studieseveryone except the Conservative party.
	Conservative Members also oppose the action we need to take in future to bring borrowing back down. The credit crunch is not hitting our economy only today; it is affecting our public finances into the future. This year alone, the revenue from the financial and housing sectors is likely to be 25 billion lower, and it will take the financial sector some time to recover. Because of the recession and the impact of the credit crunch, tax receipts will fall to 33.8 per cent. of GDP, and responsible Governments know that that has to be dealt with not now, while the economy is under pressure, but in future once the economy grows. We have set out how to do that in a fair way, but the Conservative Front Benchers oppose any action to bring borrowing down in future. They oppose any tax increases, although I notice that they are still supporting tax cuts on millionaires' estates. Not only would they not bring borrowing down, but the effect of their programme would be to push borrowing up even higher.
	When my right hon. Friend the Chancellor said earlier that the Government ought to be cutting taxes and giving a fiscal stimulus to the economy, quoting what the Conservative party leader said in July, I noticed that the hon. Member for Runnymede and Weybridge (Mr. Hammond) cried out no, saying it should be done permanently. I should point out to the hon. Gentleman that a permanent fiscal stimulus is a permanent increase in borrowing. That is what this party opposes and why we are calling for borrowing to come back down and why we are being responsible about it.
	The cut in VAT, once it is passed through, will mean that the average household will find its normal spending costs more than 20 less each month. That is extra cash that people can spend to support the economy or to help them get through the more difficult times ahead. We want to give every pensioner in the country 60 extra in the new yearsomething opposed by the Conservatives at the very time that it is most difficult for pensioners to pay their fuel bills in the winter months.
	We want 3 billion brought forward to repair schools, insulate homes and build roadsagain, that is early investment opposed by the Conservatives. We want to put 20 billion into the economy, which the Conservatives also oppose. It will be funded by borrowing in the short term that we will bring down and which they have opposed time and time again. Yes, it means borrowing more in the short term; the truth is that it will cost us all far more later if we do not do that now. The Conservatives say that we cannot afford to do it, but we know that we cannot afford not to.

Paul Burstow: rose in his place and claimed to move, That the Question be now put.

Question put, That the Question be now put:
	 The House divided: Ayes 67, Noes 422.

Question accordingly negatived.
	 It being more than three hours since the commencement of proceedings, the motion lapsed without Question put, pursuant to Standing Order No. 24.

Simon Hughes: On a point of order, Madam Deputy Speaker. The whole House was grateful to Mr. Speaker for allowing the debate, but my colleagues and I have tried twice to get a vote on the substantive matters to do with the pre-Budget report, first by tabling a prayer against the proposals for the tax changes and secondly by seeking a vote on whether we have had enough time today to debate the pre-Budget report. Labour and the Conservatives voted together to prevent that vote. Will you advise the House [Interruption.]

Madam Deputy Speaker: Order. Will Members please come to order so that I can hear the hon. Gentleman's point of order?

Simon Hughes: Please will you advise the House on how we can have an opportunity, either today or at the first possible occasion when we come back, to vote on the substantive issues in the pre-Budget report? Some of us do not agree with them all and some of us want to be able to vote accordingly.

Iain Duncan Smith: Further to that point of order, Madam Deputy Speaker. I hope, if possible, that when you answer that point of order you might correct something that the hon. Gentleman said. He said that that he and his colleagues voted to get more time on the motion, but in fact what they voted on was closing the debate ahead of time.

Madam Deputy Speaker: My best advice to the hon. Member for North Southwark and Bermondsey (Simon Hughes), who is an experienced Member of this House, is to go to the Table Office and have a word with the staff there.

European documents

Motion made, and Question put forthwith, pursuant to Standing Order No . 119(11) (European Committees),

Financial services

That this House takes note of European Union Document No. 12149/08 and Addenda 1 and 2, draft Directive on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS); No. 13713/08 and Addenda 1 and 2, Draft Directive amending Directives 2006/48/EC and 2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management; and No. 14317/08, Draft Directive amending Directive 94/19/EC on deposit guarantee schemes as regards coverage level and the payout delay; and endorses the Government's approach on all three draft Directives. [ Helen Goodman .]
	 Question agreed to.

Banking Bill (Programme) (No. 2)

Ordered,
	That the Order of 14th October 2008 (Banking Bill (Programme)) be varied as follows:
	1. Paragraphs 4 and 5 of the Order shall be omitted.
	2. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on the Motion for this Order .[Ian Pearson.]

Orders of the Day

Banking Bill

As amended in the Public Bill Committee, considered.

Ian Pearson: rose

Madam Deputy Speaker: Order. Will Members who do not wish to stay for the debate please leave the Chamber as quickly and quietly as possible?

New Clause 11
	  
	Special resolution regime: compensation: Sources of compensation

'(1) This section applies to
	(a) compensation scheme orders,
	(b) resolution fund orders,
	(c) third party compensation orders, and
	(d) regulations under section 60.
	(2) An order or regulations may provide for compensation or other payments to be made by
	(a) the Treasury,
	(b) the Financial Services Compensation Scheme, subject to section 214B of the Financial Services and Markets Act 2000 (contribution to costs of special resolution regime - inserted by section 165 below), or
	(c) any other specified person.'. [Ian Pearson.]
	 Brought up, and read the First time.

Ian Pearson: I beg to move, That the clause be read a Second time.

Madam Deputy Speaker: With this it will be convenient to discuss the following: new clause 6 Contingency funding: power to make regulations
	'After section 214A of the Financial Services and Markets Act 2000 (Contingency funding - inserted by section 164 above) insert
	214AA Contingency funding: power to make regulations
	The Treasury may make regulations under section 214A only after it has laid before Parliament a report on the impact of a pre-funded scheme on the classes of person from whom contributions can be levied and whether contingency funding is the best way to achieve the special resolution regime objective set out in section 4 of the Banking Act 2008.'.
	Government amendments Nos. 23 to 26.
	Amendment No. 5, in page 86, line 7, leave out clause 164.
	Amendment No. 17, in clause 164, page 86, line 24, at end insert
	'(da) arrangements for institutions that have permission under part 4 of the Financial Services and Markets Act 2000 to carry out the regulated activity of accepting deposits (within the meaning of section 22 of the Act, taken with Schedule 2 and by order under section 22) but are not incorporated in, or formed under the law of, any part of the United Kingdom;'.
	Amendment No. 13, in clause 165, in page 87, line 12, after '(2)', insert 'Subject to subsection (2A),'.
	Government amendments Nos. 41 and 42.
	Amendment No. 14, line 18 , at end insert
	'(2A) Prior to requiring the scheme manager to contribute towards the exercise of the stabilisation powers, the Treasury may require
	(a) a private sector purchaser to make a contribution where the option under sections 11 or 12 has been exercised, or
	(b) the bank liquidator to make payment where a bank insolvency order has been made, or
	(c) the bank administrator to make a payment where a bank administration order has been made.'.
	Government amendments Nos. 43 to 48.

Ian Pearson: This first group of new clauses and amendments covers a wide range of subjects. I propose, with your permission, Madam Deputy Speaker, to speak to the Government new clauses and amendments, and then to seek to catch your eye at a later point in the debate to respond to the amendments tabled by the hon. Member for Fareham (Mr. Hoban).
	Let me start with Government new clause 11 and Government amendment No. 26, which is consequential on it. As was discussed in Committee, the Bill provides a number of ways for compensation to be calculated and paid to compensatable persons. As hon. Members will know, it allows the Treasury to make regulations to provide for no creditor being worse off following a partial transfer. The purpose of new clause 11 is to make explicit provision in the Bill for the Treasury, the Financial Services Compensation Scheme or other specified persons to pay or contribute to compensation payments under clauses 49 to 61.
	Government amendment No. 26 is consequential on new clause 11. It removes the provisions in subsection (6)(c) and (d) from clause 60, as new clause 11 now supersedes them. In Committee, the hon. Member for South-West Hertfordshire (Mr. Gauke) tabled a probing amendment that questioned whether subsection (6)(c) and (d) appropriately placed in clause 60. New clause 11 sets out more clearly our intention to ensure that if needed the appropriate persons can pay or contribute towards compensation. These are sensible amendments that reflect the consensual debate that we had in Committee, and I hope that the House will support them.
	Government amendments Nos. 23 to 25 amend clause 60, which, as hon. Members will know, puts in place a safeguard to protect creditors following a partial transfer, as it aims to ensure that they are no worse off than they would have been had the bank gone into a whole bank insolvency procedure. This is part of the package of safeguards on which the Government are consulting. The basic principle that will be implemented in the regulations to be made under the clause is that there should be a comparison of the treatment that creditors of a residual bank created by a partial property transfer receive in fact with the treatment that they would have received in the hypothetical circumstances of the whole bank entering an insolvency procedure. Should that process show that creditors have received less in fact than they would have done in the hypothetical circumstances, the difference is to be made up. As drafted, the hypothetical circumstances used in clause 60 for the purposes of comparison are those of the winding up of the bank. This is a reference to a particular form of insolvency procedure involving the appointment of a liquidator and the realisation of the bank's assets and their distribution to creditors.
	The purpose of amendments Nos. 24 and 25 is to make a technical change to provide greater flexibility. The references to winding up will be replaced by references to a full range of different insolvency procedures, because a bank might end up in some form of insolvency procedure other than the bank insolvency procedurefor example, administration under the Insolvency Act 1986. The amendments aim to preserve the flexibility of the Treasury to select the most appropriate hypothetical circumstances for comparison in secondary legislation.
	Amendment No. 23 is a technical correction to subsection (2) of clause 60, which relates to the insolvency procedure that the residual bank, rather than the hypothetical whole bank, is likely to enter. As a partial transfer is likely to render the residual bank insolvent, and as the residual bank may need to provide services and facilities to the transferee, this procedure is likely to be the bank administration procedure. Again, the amendment provides flexibility to select the most appropriate procedure. I hope that the House will agree to it.
	I turn to Government amendments Nos. 41 to 48 to clause 165. The effect of these amendments is to require the Financial Services Compensation Scheme to be able to contribute up front to the costs of a resolution. Let me briefly set out how such an approach would work. The amendments to clause 165 will allow a payments on account approach to be adopted. That would allow the Treasury to impose a requirement early on, possibly immediately after use of the stabilisation powers, for the FSCS to contribute an amount to the resolution. That would be based on an estimate of the eventual payment under clause 165. The FSCS would be obliged to make the payment. Thereafter, there would be an evaluation exercise and an assessment of the final costs of resolution, with a balancing payment being payable either from the Treasury to the FSCS, or from the FSCS to the Treasury. Following the experience of recent resolutions, including the Bradford  Bingley case, it is important to have the flexibility to require the industry to contribute to the costs associated with resolutions before the end of the process. That flexibility could allow the FSCS to start paying, from day one, towards interest costs on any loans from the national loans fund in relation to a resolution. Paying up front could be preferable to leaving the cumulative interest costs to the end of the process.
	I have mentioned the importance of having safeguards to protect the use of FSCS funds, and I should like to reassure hon. Members that current safeguards surrounding the use of such funds will still exist. The safeguarding principle that resolution costs should be capped at the level at which depositor compensation would have been payable had the bank entered insolvency proceedings will be retained, as will the safeguard that ensures independent auditing of the amount that the FSCS will have to contribute. The amendments provide useful flexibility to allow the FSCS to contribute up front, rather than only at the end of the process, while preserving important safeguards to protect the interests of levy payers. I hope that the House will support these amendments. As I have said, Madam Deputy Speaker, I should like to catch your eye later to reply to the hon. Member for Fareham's comments on his amendments.

Mark Hoban: Let me deal first with the Government's new clause and amendments. I am sure that my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) will be heartened to hear that the Government took note of his comments, in Committee, about the appropriate place for the institutions that have been mentioned. We have no problem with that.
	We would expect resolution regime costs to be paid up front, especially in the light of recent transactions in which the FSCS has taken part. The Minister will know that we are not as convinced as he is about the safeguards, and we will discuss the contribution that the FSCS has to make in such situations when we come to later amendments. On the concept of being able to meet up-front payments, we are content.
	The new clause and amendments that I have tabled tackle three issues, the first of which is the pre-funding of the compensation scheme. We touched on this matter in Committee, and I want to revisit it today. The second issuehow to protect people who bank with branches of overseas bankshas caused a great deal of concern to constituents. The third issue is who should bear the costs of the special resolution regime. That has already been mentioned in relation to Government amendments Nos. 41 to 48.
	Clause 164 gives the Treasury the power to make regulations for a pre-funded compensation scheme that could cover any part of the financial services sector, not just the banking sector. The argument in favour of pre-funding is that the FSCS needs to be pre-funded to ensure that there are sufficient resources to make a payout to the customers of a failed bank or other financial institution. Currently, the FSCS works on a post-funding basis. There is a levy on financial services businesses through industry groups. One such group, deposit takers, includes banks, building societies and credit unions. Once the levy payable by that group is exhausted, other financial services institutions outside that group will be required to make payments to the FSCS. The scheme is important, in that it has an impact not only on the sector concerned but on others as well.
	When we debated these matters in Committee, the Minister would not be drawn on whether he thought it necessary to have a pre-funded scheme. He thought it appropriate for the powers to be available and for there to be further consultation and discussion on whether that was the right way to proceed. Not knowing whether this will be the next step forward will put the financial services sector in a difficult position, because it will not know what preparations it needs to make. However, the case for pre-funding was not made properly in Committee.
	An argument for pre-funding can be made, and new clause 6, which requires a report to be laid before Parliament before the regulations are made, is a vehicle for making that case. Amendment No. 5, which I have tabled, would remove clause 164 from the Bill entirely. I would like to make it clear that I want to press that amendment to a vote at an appropriate point in our deliberations.

Mark Todd: I am sure that the hon. Gentleman would agree that our debate in Committee focused on two issues: the principle of whether pre-funding was desirable and the mechanisms by which pre-funding might be achieved, bearing in mind the very different risk profiles of the various institutions that might be called on to contribute. For example, building societies have historically cleaned up their own difficulties in that sector, but they might be called on to contribute to institutions that have followed much higher risk profiles in business.

Mark Hoban: The hon. Gentleman makes an important point. In the wider debate on the pre-funded scheme, the Building Societies Association has highlighted instances in which building societies might be called on to contribute to resolutions. It says that the building societies have swallowed their own smoke, to use a phrase beloved by the Minister in Committee, and that a requirement to contribute to a pre-funded scheme would reduce the money available to them to lend to their members, which would perhaps reduce their attractiveness. We need to think about who would contribute to the scheme and what the impact of that would be.
	This is not just about building societies. Credit unions could be placed in a difficult position, as they do not often have huge reserves, but, as deposit-taking institutions, they could be covered by the provisions. Such contributions would take money out of the credit union sector, when that money would be better employed being lent to people than being put into a pre-funded scheme.
	The case has not been made for a pre-funded scheme, and there are strong arguments against introducing such a scheme. The first is that the important point is not whether the scheme is pre-funded but whether it has access to liquidity and resources to enable it to make payments to customers when a bank has defaulted. The second argument asks whether a pre-funded scheme would be the best use of assets. We have touched on that question in the context of building societies, but I want to make some broader points on that in a moment. Thirdly, while this debate has been primarily about pre-funding in the event of a bank failure, the powers in the clause could require other financial sectors to contribute to a pre-funded scheme to rescue a bankor, indeed, any other financial institution.
	The Bill makes provision for the scheme to access the national loans fund. This is what has happened in the context of Bradford  Bingley, where money has been borrowed from the Government to lend to Banco Santander to cover the deposits. Consumers are given confidence not because there is a pre-funded scheme or a pot of money already sitting there, but because a bank has access to resources that enable the Financial Services Compensation Scheme to make payments to customers in the event of a default. With a post-funded scheme, a reasonable amount of time would need to be allowed to recover the money from the bank, so as not to put undue strain on the balance sheets of banks, building societies and other deposit takers at a time when the whole financial system is under distress.
	Given the increasingly concentrated nature of the UK banking system, the pot of money that it would be necessary to build up against any failure would be quite significant. The position is very different from that in the US, which has a much more fragmented banking system. It also has the Federal Deposit Insurance Corporation and needs to have a pre-funded scheme, because the likelihood of a bank failing is much greater, given the sheer number of institutions involved.
	A pre-funded scheme would be capital-intensive, and the second argument is that that money would be better used by a bank, building society or credit union, rather than being tied up in the Financial Services Compensation Scheme. Accumulating the fund could increase the pressure on bank capital and liquidity. There is also the possibilityat least we hope sothat once the scheme had been built up, it would never be used. We have gone through a period of extreme volatility and instability, and I am not sure of the value of having a significant sum sitting in the hands of the FSCS that might never be used. We do not expect another comparable period of financial instability, and there are better ways to use that money than having it tied up in that way.
	The report envisaged in new clause 6 would be a good way to set out the arguments about a pre-funded scheme. Before the Government laid regulations in this area, the House would have to be persuaded that this is the right approach.
	The third point is that the pre-funding debate encroaches on more than just the banking sector. The hon. Member for South Derbyshire (Mr. Todd) talked about building societies, and there are other categories of deposit-taking institutions, such as credit unions. There is also concern in other parts of the industry that they would have to pay the costs of mistakes in the banking sector. The Association of British Insurers has said:
	We are concerned...that the present approach requires all sectors of financial services to contribute to the costs. This involves cross subsidy which imposes an unfair burden on the insurance industry, particularly in cases where, as in Bradford  Bingley, insurers have already made substantial contribution through the provision of additional capital by their investment arms.
	Several insurers subscribed to the rights issue, and they would be doubly penalised if they lost that money and had to make an excess payment to the FSCS. The present arrangements mean insurers could end up paying twice.
	A powerful case has been made that a pre-funded scheme is not the appropriate approach. There is another argument to be made, and we will come to that in the debate on the special resolution regime in the next group, but I shall flag it now briefly. For customers, the best deal is continuity of service. They want to be able to go into their bank and withdraw cash, or have their cheques cashed, use their debit cards and have their standing orders and direct debits honoured. They do not want to have to wait for five days, seven days, a month or however long it takes for the FSCS to send them their cheque. Continuity of service is a much better way to resolve the problem than dependence on a compensation scheme. If continuity of service were the priority for protecting depositors, we would not need a pre-funded scheme.
	The argument for a pre-funded scheme has not yet been made strongly enough. The arguments against it are much stronger, which is why I have tabled new clause 5.
	Amendment No. 17 is a probing amendment, and flags up a debate that we had in Committee, although it was truncated. It concerns the challenge posed under the passporting arrangements for financial institutions in the European economic area. That enables an institution regulated in one state to establish a branch in another. It is part of the liberalisation of financial markets in the EU. The home state acts as a prudential regulator, looking at capital and deposit protection, while the host statethe country in which the branch is establishedlooks after the conduct of business rules.
	It was those rules that enabled the Icelandic bank Landsbanki to establish a branch trading as Icesave in London. Icesave was able to upstream some of the money attracted from UK depositors to Landsbanki in Iceland to reduce its dependence on funding from wholesale markets. Customers of Landsbanki would have realised that they were covered up to 50,000 under the deposit protection schemes in place when Landsbanki went into administration.
	The first layer of the protection was under the Icelandic guarantee scheme, while the second layer was a top-up from the FSCS. However, as events have demonstrated, the first layer of support depends on the capitalisation of the bank and, in this instance, on the sovereign guarantee of the home country. In the absence of support from the Icelandic Government, the UK Government could have been on the hook for that first layer of protection.
	That problem has been resolved by the IMF and UK loans to Iceland, but it illustrates the challenges that we face. As EU financial services markets are liberalised, customers are being put at risk because they depend on the home state for an element of consumer protection. I raised this matter in a debate on a European directive, when the Minister's predecessor, the present Secretary of State for Children, Schools and Families, was Economic Secretary. It was not adequately resolved then, and the Treasury and the FSA need to think very carefully about how we alert UK consumers to the risk that they face when they do business with a branch of an institution incorporated in another EEA member state. That is a lesson that we need to learn from the debates about Landsbanki and related matters.
	I turn now to amendments Nos. 13 and 14 in this group. Clause 165, as drafted, sets out how the special resolution regime is to be paid for and provides for the FSCS to contribute to the cost of a resolution regime. Initially, that contribution will be made by the deposit-taking sector: when it exceeds the levy from that sector for a year, it will be picked up by other contributors to the scheme. The amendments would insert into the clause a recognition of what would happen ordinarily when a business is either acquired by a private sector company or goes into liquidation or administration.
	Traditionally, the cost of a private sector acquisition is borne by both the vendor and the purchaser. For a company that goes into liquidation or administration, the costs of resolving the problem that I have described are borne by the shareholders and creditors. It is important that that is clear. Rather than it being discussed by way of a comment in Committee, or put in the code of practice, it should be in the Bill, so that people know fully who is expected to pay for the resolution regime.

Colin Breed: May I say a few words about the compensation scheme? The essence of any such scheme is the confidence that the public can place in it. Whether we are talking about a pre-funded scheme, which is fairly unlikely to cover the whole amount that might well be necessary, or some other mechanism, depositors will need absolute confidence, first, that the money is there for them to have, and secondly, that they can get their hands on it fairly quickly. Even after Committee and our other debates, we have not yet quite got what the public would recognise as a clear compensation scheme in which they could have absolute confidence.
	Some issues are still up in the air, such as pre-funding. There are issues about the way in which foreign banks with UK branches will form part of the scheme. There is also the question of an absolute assurance on whether different branded products are treated similarly. Even now, in the Bill's Report stage, I do not believe that the average member of the public clearly understands that they can have real confidence in the compensation scheme, as they understand it.
	I suspect that there is a growing feeling among many members of the public that what happened was, in many respects, a debacle. They had to put their hand in their pocket to bail out the banks in whatever way, and given the cheap loans situation and everything else, they may well consider that any future compensation scheme should in some way be the responsibility of the banking industry. If such a scheme, however drawn up, is somehow dependent on the Government underpinning or guaranteeing itof course, it is not the Government's money, but the taxpayers' moneyI am not quite certain that members of the public will be thrilled to bits. They think that they have probably paid enough. They are looking to Government and Parliament to come up with a proper scheme in a new banking Bill to address those issues, so that they can have confidence in a compensation scheme, and their ability to access and understand it. They want to know that wherever they put their hard-earned cash, they can have confidence in a compensation scheme.
	The various amendments put forward, both in Committee and today, are attempts to improve the situation, and in general I support them, but with regard to this important aspect of the Bill, I do not believewe may speak about this laterthat we have arrived at a situation in which there is that cast-iron confidence, knowledge and security that depositors require if they are to put their money back into institutions. In some respects, the Minister may agree that the measures are still a work in progress, particularly as regards pre-funding. I accept that there are improvements, and that we are getting closer to arriving at such a situation, but I still do not think that we are close enough.

Ian Pearson: Let me start by addressing new clause 6, tabled by the hon. Member for Fareham (Mr. Hoban), which would require the Treasury to lay a report before Parliament before bringing forward any regulations under section 214A of the Financial Services and Markets Act 2000 to introduce pre-funding. It is worth recalling that those regulations will be laid before Parliament in draft. They will need to be debated and approved under the affirmative procedure before they are made, so there will be ample opportunity for debate and parliamentary scrutinyplenty of time for the Government to set out their thinking, and for Members of this House to challenge and question that reasoning. As I have said before, this is not a matter on which the Government would expect to have to act without prior consultation. Pre-funding is not an emergency action after the eventquite the reverseso I expect that there would be plenty of material, including consultation documents, in the public domain before the regulations were laid, or before the report that new clause 6 proposes had been prepared. In short, I do not think that such a report would be of much use or assistance to hon. Members when they consider the draft regulations. I hope that I have made it clear that there would be extensive consultation beforehand, and I hope that the hon. Gentleman will not press his new clause any further. As well as requiring consideration of the impact on the levy payers who contribute to the contingency fundas I said, that will be considered in any case through consultation and parliamentary scrutinythe proposed measure would require the report to consider whether pre-funding was the best way to achieve the objectives of the special resolution regime. I do not see the connection between pre-funding and the achievement of those objectives.
	Pre-funding is about building up funds to meet the costs of contingencies that may, or may not, occurwe hope that they will notand one of those contingencies requires the Financial Services Compensation Scheme to contribute to the costs of the use of tools in the special resolution regime. The choice of tools, and any decision about whether the scheme should contribute to the cost incurred, would need to be made in the light of circumstances. Decisions would then need to be made about the way in which any FSCS contribution was to be financed, so I do not know what a report prepared before pre-funding was introduced could usefully say about the hypothetical future use of the special resolution regime tools. The new clause is unnecessary, because there will be extensive consultation, and by referring to the special resolution regime objectives it does not help in any event.

Mark Hoban: One of the objectives of that regime is the protection of depositors. In justifying any need for a pre-funding scheme, the report would have to address whether such a scheme would help to protect depositors. That is the link between what the report should set out and the regime's objectives.

Ian Pearson: I do not think that the hon. Gentleman's new clause makes that particularly clear. He is referring to the principle of pre-funding, which he addresses more directly in amendment No. 5, which would remove from the Bill the clause that amends the Financial Services and Markets Act to allow the introduction of pre-funding. Before dealing with the points that he has just made, may I stress again that the Government have absolutely no plans to introduce pre-funding for the FSCS at this time.
	We can see, as can everyone, that it would not be right to impose additional financial burdens on banks and building societies at a time of great financial stress. However, there are important arguments in favour of pre-funding. Recent events have highlighted the way in which pre-funding could allow for spreading the costs of bank failure over a longer period of time, and reduce the extent to which firms have to contribute after such failure, when financial stress may be greater. Pre-funding can also mean that the failed firm will contribute to the costs of failure on the polluter pays principle, or, as I said before, according to the principle of companies consuming their own smoke. None of those are arguments for introducing pre-funding now, but when times get better, we believe that it will be right to consider the case for it again. All that clause 164 does is to allow that to happen. There will be time for consultation and debate, and parliamentary approval will be required through the affirmative resolution procedure. The introduction of pre-funding will not be hidden away in any respectquite the reverse, in fact, as we would want an open debate on the issue.
	I am a bit disappointed that the hon. Gentleman has suggested that he wants to press his proposal to a Division before hearing the Government's response, but I suspect that this is quite a well-worn path that we have trodden in Committee. He needs to reflect on the comments made by the hon. Member for South-East Cornwall (Mr. Breed) and on how the general public will see the issue. To say, as a matter of principle, that the official Opposition are against pre-funding is tantamount in the public's eyes to saying, Conservatives do not think that banks should pay up front in the event of a future bail-out. The hon. Member for Fareham argued in Committee that banks should pay after an event over a very long period on an interest-free basis.

Mark Hoban: I did not say that.

Ian Pearson: I will check the record. The general public will not consider it unreasonable to take a power to allow banks to pay up front for the costs of dealing with potential future difficulties. They will think that that is the right thing to do.
	The hon. Member for Fareham has sought to explain amendment No. 17, but I am not sure about its purpose. If I explain how the FSCS applies to foreign banks, it will answer some of his questions. First and simplest, if a foreign bank owns a subsidiary that operates as a bank in the UK, the subsidiary is a UK-authorised person with a FSMA part 4 permission to accept deposits. In other words, it is a UK bank, which means that the FSA regulates it, that it is a full member of the FSCS and that it pays FSCS levies exactly like other UK firms.
	Secondly, if a bank incorporated outside the European economic area operates in the UK through a branch established here, it needs a FSMA part 4 permission to accept deposits like a UK bank. It must be a full member of the FSCS, and it must pay levies like UK firms, although that is, of course, calculated solely on the deposits held at the UK branch.
	Thirdly, as is well known now, an EEA bank can operate through a branch here using a passport under the relevant EC directive issued by its home member state. Depositors are protected by the home state deposit guarantee scheme, and the bank may also join the FSCS top-up arrangements, provided that the FSCS offers better protection to depositors than the home state scheme. If it joins the FSCS top-up arrangements, it must pay an appropriate contribution to any levies. Foreign banks are already required to make appropriate contributions to any FSCS levies that apply to the relevant class of firm.
	If pre-funding were introduced, foreign banks operating here through branches would have to make an appropriate contribution to levies to build up a contingency fund, which could be used to meet the compensation costs of the FSCS arising from the default of such a bank. In the Government's view, there is no need to include any additional provision in the Bill along the lines proposed by the hon. Member for Fareham to make that happen. I hope that he agrees with that point on reflection and will not press his amendment.

Mark Hoban: Does the Minister take on board my wider point that depositors with those branches depend in part on the guarantee given by the home state of the branch? They may not be aware of that issue, although they should be aware of it now. How can we ensure that depositors are aware of that risk in judging whether to place deposits with such banks?

Ian Pearson: I fully understand the hon. Gentleman's wider point. He is suggesting that some depositors might have put their money in a branch of an Icelandic bank, for example, without actually knowing how that savings account was regulated. I agree with the hon. Gentleman that there is a clear need to make sure that branches of banks owned outside the United Kingdom make the basis on which they are regulated clear.

Mark Todd: On that point, it was established in Committee that in all cases of deposits, we need absolute clarity about the precise protections. That example is a good one, but there are many others in which customers may not be entirely clear about how the deposits are protected and what risks they may bear in depositing with a particular institution. I am aware that the FSA is consulting on many of those aspects, but Members would welcome an update on its progress.

Ian Pearson: My hon. Friend is exactly right that the FSA is consulting on many of the relevant issues, but it is not currently possible to say what the outcome will be. There is a clear policy issue and a clear public interest in ensuring that the basis on which people put their money into banks, and the guarantees that underpin them, are clearly understood and communicated, and we want to ensure that that is sorted out.
	The hon. Member for Fareham raised in Committee the matter relating to amendments Nos. 13 and 14, and I have set out before the reasons why it is important that the FSCS contributes to the costs of the special resolution regime, so I shall not repeat them in detail here. From what the hon. Gentleman said, I understand that his concern is to ensure that other persons, particularly a private sector purchaser or the insolvent estate, contribute to the costs of a resolution before the FSCS is called upon, and his amendments seek to achieve that.
	Let me set out why I have sympathy with the general principle but do not agree with his amendment. As I said in Committee, I agree that in some circumstances, a private sector purchaser should be called upon to contribute towards resolution costs. However, there are also certain circumstances in which it would not be appropriate for them to be required to do so. For example, there may be administrative costs or additional compensation costs that a private sector purchaser would not be willing to pay, and any requirement that they do so might reduce the likelihood of a successful private sector solution, therefore I do not believe that, in all cases, the private sector purchaser should pay resolution costs before the FSCS or the authorities.
	I have significant concerns about imposing the proposal that the insolvent estate fund resolution costs before any call upon the FSCS is made. Taking money out of the estate to fund resolution actions would lead to a smaller pot of money from which creditors and others would benefit. We wish to avoid that situation, as demonstrated by the no creditor worse off safeguard, and by objective 5 of the special resolution regime which emphasises the importance of minimising interference with property rights. In the case of one of the more likely resolution actions, a deposit book transfer, funding the resolution out of the insolvent estate might result in a de facto depositor preference regime, which the Government have sought to avoid, with the support of banks and investors in banks.
	Of course, the cap will ensure that any recoveries that the FSCS could have secured from the insolvent estate had it paid out in the normal way will be taken into account. The FSCS will not be required to pay more than it would have paid under a normal payout. Although the private sector purchaser may be called upon to contribute in some circumstances, I hope that I have explained why I do not think that they should be the first port of call in all circumstances, and why there are also risks with requiring the insolvent estate always to be called upon before the FSCS.

Mark Hoban: Amendment No. 14 reflects that point by stating may require rather than must. Nevertheless, it is important that, on Report, the Economic Secretary has put on the record the principle that, where appropriate, either the private sector purchaser or, in some cases, the insolvent estate, may be required to make some contribution.

Ian Pearson: I entirely agree with the intention to protect the use of FSCS funds, and that intention is behind some of the amendments tabled by the hon. Member for Fareham (Mr. Hoban). I hope that my comments today have been helpful for those who observe these things closely.
	We have included a number of safeguards over the use of such moneys, including, as I have mentioned, a cap and the independent verification of any resolution costs. However, the hon. Gentleman's amendments are not the right way to proceed to protect the use of such funds. I sense that he does not want to push this group of amendments to a Division, although, as he said earlier, he may want to push the principle of excluding from the Bill a power to establish pre-funding. That would be a serious mistake, but if he wants to vote on it, so be it.
	 Question put and agreed to.
	 Clause read a Second time, and added to the Bill.

New Clause 12
	  
	Special resolution regime: Continuity obligations: onward property transfers

'(1) In this section
	(a) onward transfer means a transfer of property, rights or liabilities (whether or not under a power in this Part) from
	(i) a person who is a transferee under a property transfer instrument under section 12(2) (an original transferee), or
	(ii) a bank, securities issued by which were earlier transferred by a share transfer order under section 13(2), and
	(b) the person to whom the onward transfer is made is referred to as an onward transferee.
	(2) The continuity authority may
	(a) provide for an obligation under section 62 to apply in respect of an onward transferee;
	(b) extend section 63 so as to permit action to be taken under section 63(2) for the purpose of enabling an onward transferee to operate transferred business, or part of it, effectively.
	(3) The continuity authority means
	(a) the Bank of England, where subsection (1)(a)(i) applies, and
	(b) the Treasury, where subsection (1)(a)(ii) applies.
	(4) Subsection (2) may be relied on to impose obligations on
	(a) an original transferee (where the original transfer was a property transfer),
	(b) a residual bank within the meaning of section 62 (where the original transfer was a property transfer),
	(c) the bank (where the original transfer was a share transfer),
	(d) anything which is or was a group undertaking (within the meaning of section 1161(5) of the Companies Act 2006) of anything within paragraphs (a) to (c), or
	(e) any combination.
	(5) Subsection (2) may be used to impose obligations
	(a) in addition to obligations under or by virtue of section 62 or 63, or
	(b) replacing obligations under or by virtue of either of those sections to a specified extent.
	(6) A power under subsection (2) is exerciseable by giving a notice to each person
	(a) on whom a continuity obligation is to be imposed under the power, or
	(b) who is expected to benefit from a continuity obligation under the power.
	(7) Sections 62(3) to (7) and 63(3) and (4) apply to an obligation as applied under subsection (2)
	(a) construing transferred business as the business transferred by means of the onward transfer, and
	(b) with any other necessary modification.
	(8) The Bank of England may act under or by virtue of subsection (2) only with the consent of the Treasury.'. [Ian Pearson.]
	 Brought up, and read the First time.

Ian Pearson: I beg to move, That the clause be read a Second time.

Madam Deputy Speaker: With this it will be convenient to discuss the following: Government new clause 13 Special resolution regime: Continuity obligations: onward share transfers.
	New clause 8 Order of consideration of stabilisation options
	'The stabilisation options in sections 11, 12, and 13 must be considered in the order set out above.'.
	New clause 9 Financial Services Compensation Scheme
	'(1) The scheme manager must decide, once a stabilisation power has been exercised, how to achieve Objective 3 of the special resolution regime through
	(a) the transfer of a relevant account to another financial institution, or
	(b) making a payment to relevant depositors.
	(2) Subsection (1)(a) takes precedence over subsection (1)(b).
	(3) Prior to making its decision the scheme manager must consult
	(a) the Treasury,
	(b) the Bank of England, and
	(c) the FSA.'.
	New clause 10 Report on exercise of stabilisation powers
	'(1) On the exercise of stabilisation powers, the Treasury must lay before Parliament a report setting out
	(a) the reason for the exercise by the FSA of its powers under section 7, and
	(b) how the Treasury of the Bank of England then exercised their stabilisation powers to achieve the special resolution regime objectives.
	(2) Where the Treasury believes the disclosure of certain information in the report in subsection (1) would adversely affect achieving the special resolution regime objectives, that information may be withheld from publication for up to six months from the date on which the stabilisation powers were exercised, but must be published at the expiration of that period.'.
	No. 74, in clause 5, page 3, line 34, at end insert
	'(aa) how the interests of creditors will be taken into account in the use of the options set out in subsection (1),'.
	No. 9, page 4, line 3, at end insert ', and
	(g) on the criteria by which the FSA will judge breach of threshold conditions.'.
	No. 8, in clause 7, page 4, line 27, leave out from 'conditions' to end of line 28 and insert
	'(within the meaning of paragraph 4 of Schedule 6 to the Financial Services and Markets Act 2000 (threshold conditions: adequate resources)).'.
	No. 12, page 4, line 32, at end insert
	'(3A) Condition 3 is that the FSA has consulted
	(a) the Bank of England to ensure that it will be able to exercise a stabilisation power under section 8, or
	(b) the Treasury to ensure that it will be able to exercise its powers under section 9.'.
	No. 10, in clause 12, page 6, line 36, leave out paragraph (a).
	No. 11, page 7, line 15, at end insert
	'(6) The primary objective of a bridge bank shall be to facilitate the sale of a bank - in whole or in part - to one or more private sector purchasers, but if that is not feasible the bridge bank must be either
	(a) wound up in a manner that meets the special resolution regime objectives and is in the interests of the remaining creditors, or
	(b) taken into temporary public ownership.'.
	Government amendments Nos. 27 to 37.

Ian Pearson: As with the previous group, I should like to begin my remarks by addressing the Government new clauses and amendments. I shall speak at a later date about the other amendments moved in the names of members of the Opposition.
	I noted in Committee that the Government would introduce technical amendments to the continuity obligations provisions. A general continuity obligation arises automatically following a transfer, by the operation of law under the provisions of clauses 62 and 64. The intention is that that general obligation would be replaced with a special obligation as soon as the authorities could determine the specific and precise nature of the required service or facility. For example, in the case of a property transfer, the special obligation power gives the authorities powers to create, modify or cancel contracts between a transferee and the group companies of a residual bank and the residual bank itselfbut only in relation to services and facilities required to operate the banking business effectively.
	New clauses 12 and 13 allow the continuity obligations, both general and specific, to be extended following an onward transfer. The clauses aim to provide the maximum level of flexibility so that, for example, a continuity obligation may be owed to both an initial transferee and an onward transferee. That may be necessary if only part of a bank is sold in an onward transfer. Of course, the requirement for a reasonable consideration to be paid for services still stands.
	Government amendment No. 37 is consequential to new clauses 12 and 13. Amendments Nos. 27 to 36 do three things. First, they clarify that continuity obligations apply in the case of multiple initial transferees. For example, if part of a bank is sold to a private sector purchaser and the remainder is transferred to a bridge bank, former group companies may need to provide services to both transferees. Secondly, the amendments make a minor technical correction to ensure that continuity obligations can apply to group undertakings other than companies. That is a technical point, as the legal definitions of the terms undertaking and company differ slightly. Finally, they require Treasury consent for the Bank of England to exercise the power to modify the general continuity obligation under clause 64 for a share transfer to a commercial purchaser. That was an unintended omission, and the amendment brings clause 64 into line with all the other continuity obligation provisions.
	I want to say a short word about an announcement made in the pre-Budget report in relation to groups, as I signalled in Committee. The Government intend to introduce amendments in another place to increase the Bill's effectiveness in allowing the authorities to deal with risks to financial stability. The Government propose to extend the Treasury's power to take a failing bank into temporary public ownershipwhere it would be in the interests of financial stability or the protection of public fundsto include banking group holding companies. That power would be used in cases where the resolution of a deposit taker in isolation would not be sufficient to prevent a serious risk to financial stability, public funds or both. Stakeholders understand that it is important that the authorities are in a position to resolve banking groups, be they large or small, and we will be working with them as we develop the necessary changes to the Bill.
	I have spoken to the Government new clauses and amendments, and I will seek to catch your eye later, Mr. Deputy Speaker, to respond to amendments in the names of other hon. Members. I will give them the opportunity to speak to them first before passing my comments on them.

Mark Hoban: I shall deal first with the new clauses and amendments proposed by the Economic Secretary. He is right to identify the importance of the continuity of services and facilities in the Bill, which goes back to comments made on the last group of amendments that one of the ways in which we can best achieve financial stability is through that continuity of service. If we can make sure that that happens, it will give consumers far greater protection than almost anything else we can do. The fact that they are aware that their bank is open for business the next day, even if it is rebranded, renamed or whatever, will provide more reassurance than payments made through a deposit guarantee scheme. We will return to that point later in this group of amendments.
	It is important for the Economic Secretary to deal with the following point. I do not know whether it should be covered in the code of practice or in a debate on this matter in the other place, but I assumed that the services that the Economic Secretary referred to when talking about continuity included things such as IT contracts, provision of equipment, payroll, facilities management for branches of banks and so on. The sort of things that make a branch of a bank function do not concern the transfer of the building but the services that go on there. It is important that those who supply such services to banks understand that they could be required to do so, and if they do not understand that, they need to, because it will make the regime work in practice.
	The Economic Secretary also talked about the amendments that will be introduced in the other place dealing with holding companies, and I understand that discussions have started with stakeholders on those. We would want to look carefully at how the detail works, because in some cases the holding companies are not just of banks, but of other financial institutions. We need to understand how that process works. The Bill is primarily about banks rather than the broader financial services sector.
	Turning to the new clauses and amendments in my name, I shall speak to new clause 8 and amendments Nos. 10 and 11 together. Three stabilisation options are set out in clauses 11, 12 and 13. They are private sector purchase, a bridge bank and public ownership. The challenge for people in considering those options is that the first and the third, as set out in clauses 11 and 13, are familiar concepts. As a consequence of what has happened in the past 18 months, we know what temporary public ownership is, and we know what happens when there is a private sector sale. The new facility or provision is the bridge bank. I felt that it was important, through amendment No. 11, to include in the Bill what the objective of the bridge bank was, moving it up from the code of practice. It should be clear what we seek to achieve by invoking that stabilisation option.
	It is important that the Bill makes it clear that there is an order of precedence or priority. When the authorities look at how to rescue a failing institution, their first reaction, as it was with Northern Rock last year, is to find a private sector solution. A private sector solution is much cleaner than the second and third options and will largely keep creditor rights in place, with fewer issues arising to do with competition, arm's length management and so on. Although a private sector solution is a much cleaner outcome, it may not always be the best outcome, which is why it is right that other options should be in place. However, we know from the debate in Committee on partial transfers that bridge banks can disrupt the usual rights of creditors, which is not the case for the private sector solution. Furthermore, competition and management issues arise when banks are subject to either a bridge bank or temporary public ownership.
	We debated in Committee, on the one hand, how a bridge bank could be managed to maintain the value of its franchise and improve its value to a private sector purchaserthat is one of the objectives of a bridge bankand, on the other hand, ensuring that constraints are in place to prevent its form of ownership at that point from being a competitive advantage against other banks. The Minister said in Committee that he would expect a bridge bank to be able to take on new business, but that it would not be intended to
	compete aggressively in the marketplace. [ Official Report, Banking Public Bill Committee, 6 November 2008; c. 368.]
	A private sector solution makes it much easier to avoid that conflict. That is why we would prefer, as it were, an order of precedence in the Bill.

Stewart Hosie: I understand why the hon. Gentleman wants an order of precedence. On balance I am broadly supportive, but I have a question. If the situation is critical and speed is of the essence to prevent an institution from causing a systemic failure, is it absolutely necessary or even desirable to lay out the order of precedence in the way that he describes, especially given how long the discussions with various private sector bidders for Northern Rock took? Should the order of precedence not be implicit rather than explicit, thus allowing the Government to move immediately to the second or third option, thereby treating them as the first option, if that is necessary under the circumstances?

Mark Hoban: The hon. Gentleman makes a valid point. The search for a potential private sector solution to Northern Rock was a long and drawn-out process, and the Government reached their conclusions on the success of that. I am not saying that rescuing a failed bank means hawking it round the market in its entirety, in the way that Northern Rock perhaps was, because that could be detrimental to any solution. I am just saying that we should ask whether there is a private sector solution, rather than instinctively saying, Let's bung it in a bridge bank, or, Let's put it into temporary public ownership.
	We are trying to ensure that the private sector solution is there in the authorities' thought processes when they look at a failed institution, given that it is potentially the best solution. If that was not feasible in the time scale, it would be right to look at other options. When the Executive took over Bradford  Bingley, they thought that it was possible to transfer the business bit very quickly, through a private sector solution, and we are now left with a so-called bad bank and its mortgage loan book.

Colin Breed: I broadly support the hon. Gentleman's view, but I have some reservations about the timing. However, we are not precluding a private sale if an institution has gone into a bridge bank or even if it has come under temporary ownership. If at a slightly later stage somebody comes out of the woodwork with a private sector solution, they will not be precluded from taking it forward. In other words, going through the other two processes does not mean that we have dismissed the first.

Mark Hoban: That is absolutely right. It might be possible to hold a bank in its entirety in the bridge bank mechanism, with a view to managing it to be sold as a whole bank. There is no sense that considering one option excludes another. I will not ask to put our amendments to the vote; rather, they are intended to probe the Government's thought processes and clarify how they would address the various solutions, given the complexities that are attached to the bridge bank and temporary public ownership.
	New clause 9 deals with an issue that we touched on earlierhow to protect depositors in the event of a bank failure. There are gaps in the Bill. First, it is not clear who decides whether payment should be made to consumers or the account should be transferred, as in the case of the Bradford  Bingley, into another bank. New clause 9 was tabled to probe that issue. I have suggested that the FSCS, having consulted the other authorities, should make that decision. I am not sure that the Bill as drafted tells us who should make that decision or what the decision-making process should be. The new clause helps to flush out that issue.
	For depositors, I believe that the best solution in principle is the ability to go to another bank the next day to withdraw funds. If we want to protect depositors, we should make it clear that the best way of doing that is by providing that continuity of servicethe Minister's first point when he moved the Government amendments. The sub-optimal solution, but it may be a necessary solution, is payment through the FSCS. As demonstrated with the Icelandic banks when deposits were moved to ING Direct, that was a much better process. It was preferable to dependence on the FSCS for people in Icesave, parts of Kaupthing Singer  Friedlander and Heritable or others that ING Direct did not wish to acquire. We need to signal that, wherever possible, a straight transfer to another bank is the preferred solution. That will give customers the most satisfaction and the most confidence in the banking system. It also somewhat removes the need for a pre-funded scheme, but that is a debate and vote for later. There are many ways to approach the issue.
	New clause 10 deals with the publicity that should be given when the stabilisation powers have been exercised. One challenge that arises from the Bill is that it will give the authorities some quite significant powers, but there is a lack of transparency about how they will be used. The code of practice gives some guidance about their use, but in reality, the proof of the pudding will be in the eating. Only when we have seen the powers exercised will we know the constraints within which the authorities are working or the relevant thought processes. People will learn from those precedents how the powers will be used in future.
	New clause 10 has various elements. The FSA needs to show how it believes that the threshold conditions have been breached, which will then trigger the stabilisation powers, and it will then be for the Treasury and the Bank of England to explain why they used those particular powers in the way that they did. We debated publication in Committee. I am mindful of the risk that confidential information is relevant, which might in itself pose a threat to financial stability. It is important that information released initially should not be prejudicial to financial stability, but it can be published at a later stage. It is important that the audit trail is made available. The process of publication is dealt with in the code of practice, but the code is non-binding and does not have legal status. It is an important issue, so ensuring that there is proper disclosure of how and why the powers have been used should be built directly into the Bill.
	Amendment No. 74 relates to one of the issues on which we have engaged in a certain amount of debate: how the interests of creditors will be taken into account. The Bill contains some safeguards. The Minister said earlier that no creditor would be worse off, although compensation would depend on the way in which the powers had been exercised. Despite that, however, there are still concerns about the impact of the powers on the rights of creditors, and about how the Government will look at those rights when considering which powers to exercise. It would be helpful if the code of practice included a requirement for the issue to be properly discussed. In Committee we tried to amend the objectives to take account of the rights of creditors, but I think that there is a different way of trying to ensure that that happens.
	Amendment No. 9 and the amendments that follow it relate to the exercise of the threshold conditions. In Committee, we debated the threshold conditions set out in FSMA. They are fairly broad, and not very tightly focused. In amendment No. 8, I suggest that we focus particularly on the part of FSMA that relates to adequate resources, because that is the issue that seems to have aroused the most concern in the context of Bradford  Bingley and the Icelandic banks. We need to know exactly what the FSA is looking at. Amendment No. 9 is complementary to amendment No. 8: it asks the FSA to publish guidance on what it would consider to be a breach of threshold conditions.
	I am aware that we are not discussing a straightforward quantitative exercise. There will not be red lights for various ratios; there will be a combination of qualitative and quantitative assessment. However, I feel that we need some guidance from the FSA, and that it should be contained in the code of practice, which is the text from which people will work when examining the way in which the powers in the Bill will be used and what the constraints are. I am keen to ensure that the guidance covers the exercise of those threshold powers.
	In Committee, we debated the process whereby the FSA would consider whether the Treasury conditions had been breached, following which the Treasury and the Bank of England would have to consider how to use their stabilisation powers under clauses 8 and 9. There appears to be a slight disconnect in the Bill: there is no guarantee that identification of a breach of threshold conditions by the FSA would lead to the exercising of the stabilisation powers of either the Treasury or the Bank. It is plain to me that the process is ongoing and not linear. Amendment No. 12 makes it clear that before exercising its trigger powers, the FSA must have confirmed, in consultation with the Bank and the Treasury, that action will be taken to rescue a failing bank.

Ian Pearson: In new clause 8, the hon. Member for Fareham (Mr. Hoban) seeks to establish a statutory basis for the order in which the authorities must consider the stabilisation options of the special resolution regime. The Government consider it appropriate for a range of options to be available for the resolution of the problems of failing banks. Banks may fail for a number of reasons in many different circumstances, and the optimal solution may be different in each case.
	Of course, resolution by way of the transfer of a failing bank to a private sector purchaser will generally be the authorities' favoured option, but I have emphasised during our debates that the choice of stabilisation option will be determined by an assessment of the special resolution objectives. We do not agree with the principle of ordering the stabilisation options. Forcing the order to be followed under primary legislation could delay or harm the chances of a successful resolution, and could constrain the flexibility with which the SRR tools can be applied in accordance with the individual demands of particular circumstances.
	The Government have already made it clear that temporary public ownership is an option of last resort. That is demonstrated by the test for intervention in clause 9, which we discussed extensively in Committee, so it is unnecessary to describe this further in the Bill. I also remind the hon. Member for Fareham that the draft code of practice makes provision on how the authorities will select which tool to use, so I hope that this provides a clear indication of how the authorities will consider the relative merits of each stabilisation option.
	On new clause 9, I do not agree that the Financial Services Compensation Scheme should have control over the onwards management of a bank once the stabilisation powers have been exercised. First, once the bank or banking business has been transferred, it will be controlled by another party. Secondly, it would be inconsistent for the FSCS to decide how depositors should be protected in such circumstances, as that would impact on how the bank or banking business should be controlled. The FSCS has an operational role in paying out compensation, but it is not a strategic decision maker in the context of the SRR. I also do not agree with the prioritisation of the objective to protect depositorsobjective 3to the exclusion of the other objectives in this proposed new clause. Objective 3 must be considered alongside these objectives, but not to the exclusion of them.

Mark Hoban: Who will decide how to deal with the depositors in a failed bank? In the Bradford  Bingley case, it was decided that the best solution was to transfer them across to Banco Santander/Abbey. In the Icelandic banks situation, some depositors were transferred across to ING Direct, and others were effectively left with the FSCS. Part of the point of the amendment was to flush out who took responsibility for taking those decisions.

Ian Pearson: We explained at length in Committee how the system works in terms of the responsibilities of the authorities in the tripartite arrangement. The FSA takes lead responsibility in determining whether the threshold conditions have been met, and the Bank of England is the lead authority in determining which of the stabilisation options should be pursued. We believe that this is a clear mechanism, and that it is right that the Bank of England should have the lead responsibility in this area. In such circumstances, the tripartite authorities will work together extremely closely, and the Bank of England will consult the FSA and the Treasury on the exercise of the stabilisation options.

Mark Hoban: To be absolutely clear, is the Minister saying that the Bank of England takes the lead in deciding whether the account should be transferred to another bank or should be subject to the FSCS compensation arrangements?

Ian Pearson: Certainly that is my understanding of how the arrangement would work in normal circumstances, and if there is any further clarification to be made, I will be happy to give it.
	I would like to reassure the hon. Gentleman that the FSCS will be party to decisions over the choice of SRR tools. For example, the code of practice states that the likely speed of payout regarding eligible depositors should be a factor in determining which SRR tool should be used. This will, of course, be based on the view of the FSCS. The section in the draft code of practice on the roles of the authorities also includes text on the FSCS role within the SRR. I hope that that provides reassurance.
	New clause 10 would require the Treasury to provide Parliament with a report containing details of the exercise of stabilisation powers under part 1 of the Bill. I do not believe that a general clause requiring a report to Parliament on the exercise of the powers is necessary. In each of the recent resolutions, the Chancellor has made a statement on the exercise of such powers and there has been sufficient debate on that. Of course, Parliament can call a debate on any resolution at any time it wishes. Should the Treasury exercise a stabilisation power in transferring a bank into temporary public ownership, the Bill requires that decision to be made through an order laid before Parliament. Where the Bank of England takes the lead in exercising stabilisation powers through a transfer instrument, rather than a transfer order, the Bill requires it to publicise that.
	Furthermore, following any exercise of the stabilisation options, the draft code of practice, to which the authorities must have regard, states that the authorities must make public statements explaining how they have acted with regard to the special resolution regime objectives and how they have balanced the objectives against each other. There is sufficient information about, and openness in, how the Government are proceeding on these matters.
	Amendment No. 74 would allow the code of practice to specify how the interests of creditors will be taken into account in the use of the stabilisation powers, the bank insolvency procedure and the bank administration procedure, but it is inappropriate. Objective 5 is declaratory of our obligations to ensure that any interference with property rights, including those of the failing bank and its creditors, must be both in the public interest and proportionate. The code of practice elaborates on the meaning of this effect of this objective. A number of specific features of the SRR spell out in primary legislation the protection that should be afforded to non-depositor creditors during the use of the stabilisation powers, such as the partial transfer safeguards, as set out in clause 48, and the compensation provisions in clauses 59 and 60we are all familiar with those. I believe the provisions in the Bill and the sections in the code in respect of how objective 5 will be met already meet the intention behind the amendment.
	Amendment No. 9 appears to be intended to require that the code include provision on how the FSA will determine whether the threshold conditions are met, and again I do not agree with the intention behind it. The threshold conditions are regulatory conditions under the Financial Services and Markets Act 2000. Further guidance on what is necessary to comply with the conditions is set out in the FSA handbook. I think it is right that the FSA handbook, rather than the code, provides further guidance on this matter, as it is ultimately a regulatory decision.
	Amendment No. 8 follows on from the Committee's debate on which of the threshold conditions the FSA will consider in making its determination on whether the general conditions in clause 7 have been met. My understanding of the purpose of the amendment is that it is not only to seek further clarification, but to limit the FSA's judgment as to whether a bank is failing to being a judgment only on whether it has adequate resources. I accept that this is the most relevant of the threshold conditions that appear in the FSA handbook, but I do not believe that clause 7 should be limited in such a way. However a bank fails or becomes likely to fail, the objectives of protecting confidence in the banking system, protecting financial stability and protecting depositors will remain equally important. For example, the authorities may need to take actions under the SRR following the discovery of a fraud or a sudden crisis of confidence in the suitability of a bank's management. Although many serious problems that could lead to a bank failure will correlate with difficulties in its having adequate resources, I am not convinced that all the problems will.
	The threshold conditions are the tests governing whether the FSA will allow a bank to operate as a deposit taker, and therefore it is right that these conditions are used in the Banking Bill as the gateway measure between regulation intervention and the use of the SRR tools.

Mark Hoban: The Minister cites fraud as an example of an area where the threshold conditions could be breached and the FSA could intervene. The threshold conditions are designed to determine whether businesses should become regulated. If he is trying to broaden out the basis on which the FSA should intervene beyond the threshold conditions in the legislation, the Government need to be much clearer about that than they are being in the Bill's drafting. Is he making an argument that the potential triggers could go beyond the conditions that a bank has to satisfy to be regulated?

Ian Pearson: We have always been clear, throughout the various stages of the Bill, about what the threshold conditions are. The problem that I have with the hon. Gentleman's amendment is that limiting the definition to adequate resources is too narrow and does not take other circumstances into account. That is why I shall invite hon. Members to oppose the amendment.
	We had a debate in Committee about the FSA handbook. The hon. Member for Fareham rightly pointed out some of the areas of that handbook that, in his view, would need amending. As I said in Committee, the FSA is considering whether to update the handbook, and in particular the section on threshold conditions, to clarify how its judgment of clause 7 will be met. I believe that the handbook is the right place to set out which of the threshold conditions the FSA will pay particular attention to when making its judgment.
	Amendment No. 12 would require the FSA to consult the Bank of England or the Treasury to ensure that they can use a stabilisation power under the Bill before it confirms that the general conditions are met and that those powers can therefore be used. In our view, there is already sufficient provision in the Bill to ensure full consultation between the authorities about each of the key decisions before and during the SRR, including about whether the general conditions under clause 7 are met. Clause 7(5) in particular requires the FSA to consult the Bank of England and the Treasury. It seems unnecessary to impose an additional requirement to consult the Bank and Treasury on that specific issue through the amendment.
	Amendments Nos. 10 and 11 propose that the primary objective of a bridge bank should be set out in the Bill. The primary objective that the hon. Gentleman cites is taken from the draft code of practice published by the Treasury earlier this month. I welcome his support for the text, but I am afraid that I cannot agree with the amendment.
	The special resolution objectives, as provided for by clause 4, are the primary guide for how the authorities should act when using the tools and powers of the SRR. These special resolution objectives are set out in primary legislation and that is right because they are intended to cover the entirety of part 1 of the Bill. The bridge bank objective, on the other hand, relates to just one particular stabilisation option. I do not think it is appropriate to place a specific bridge bank objective on a similar statutory standing to the special resolution objectives, because that does not provide a clear sense of purpose. For example, it would not be clear whether the bridge bank objectives were intended to be subservient to the special resolution objectives.
	Finally, clause 4 provides that the authorities should have regard to the code. In addition, the draft code provides that once actions have been taken under the SRR the authorities should make public statements explaining how they have acted. The statements will make it clear how the special resolution objectives have been balanced against each other and on what basis decisions regarding the use of stabilisation options have been made. I hope that my speech adequately addresses the various amendments tabled by the hon. Gentleman, and as I have given him some assurances on the public record I hope that he will not press them to a Division.
	 Question put and agreed to.
	 Clause read a Second time, and added to the Bill.

New Clause 13
	  
	Special resolution regime: Continuity obligations: onward share transfers

'(1) In this section onward transfer means a transfer (whether or not under a power in this Part) of securities issued by a bank where
	(a) securities issued by the bank were earlier transferred by share transfer order under section 13(2), or
	(b) the bank was the transferee under a property transfer instrument under section 12(2).
	(2) The continuity authority may
	(a) provide for an obligation under section 64 to apply in respect of the bank after the onward transfer;
	(b) extend section 65 so as to permit action to be taken under section 65(2) to enable the bank to operate effectively after the onward transfer.
	(3) In this section continuity authority has the same meaning as in sections 64 and 65.
	(4) Subsection (2) may be relied on to impose obligations on
	(a) the bank,
	(b) anything which is or was a group undertaking (within the meaning of section 1161(5) of the Companies Act 2006) of the bank,
	(c) anything which is or was a group undertaking of the residual bank (in a case to which subsection (1)(b) applies), or
	(d) any combination.
	(5) Subsection (2) may be used to impose obligations
	(a) in addition to obligations under or by virtue of section 64 or 65, or
	(b) replacing obligations under or by virtue of either of those sections to a specified extent.
	(6) A power under subsection (2) is exerciseable by giving a notice to each person
	(a) on whom a continuity obligation is to be imposed under the power, or
	(b) who is expected to benefit from a continuity obligation under the power.
	(7) Sections 64(3) to (7) and 65(3) and (4) apply to an obligation as applied under subsection (2) with any necessary modification.
	(8) The Bank of England may act under or by virtue of subsection (2) only with the consent of the Treasury.'. [Ian Pearson.]
	 Brought up, read the First and Second time, and added to the Bill.

New Clause 1
	  
	Remuneration of senior staff of rescued banks

'(1) This section applies in respect of any institution (a rescued bank) taking part in the bank recapitalistion fund (the fund) announced by the Chancellor of the Exchequer on 8th October 2008.
	(2) The Treasury must make regulations about the remuneration of senior staff of rescued banks.
	(3) Regulations under subsection (2) must provide that
	(a) remuneration arrangements are such that senior staff are given no financial incentive to take unnecessary and excessive risks that threaten the value of the rescued bank;
	(b) a rescued bank may recover from a senior member of staff any bonus or similar payment which is based on statements which are later shown to be materially inaccurate;
	(c) a rescued bank may make no golden parachute payment to its senior staff.
	(4) In this section senior staff and golden parachute have such meaning as shall be prescribed in regulations under subsection (2).
	(5) Regulations under subsection (2) shall cease to apply to a rescued bank if, and only if, it ceases to take part in the fund.
	(6) Regulations under this section
	(a) shall be made by statutory instrument, and
	(b) shall be subject to annulment in pursuance of a resolution of either House of Parliament.'. [Harry Cohen.]
	 Brought up, and read the First time.

Harry Cohen: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss new clause 2 Reversion of rescued former building societies to mutual status
	'(1) This section applies in respect of any company to which subsections (2) and (3) apply (and which is referred to in this section as a rescued former building society).
	(2) This subsection applies if
	(a) the assets and liabilities of a building society (within the meaning of section 119 of the Building Societies Act 1986 (the 1986 Act)) have been transferred to the company, and
	(b) the company continues to trade under the name of that society (or under a similar name).
	(3) This subsection applies if
	(a) an order under section 3 (transfer of securities issued by an authorised UK deposit-taker) or 6 (transfer of property, rights and liabilities of an authorised UK deposit-taker) of the Banking (Special Provisions) Act 2008 has been made in relation to the company, or
	(b) the company has taken part in the bank recapitalisation fund announced by the Chancellor of the Exchequer on 8th October 2008, or
	(c) the company is subject to any of the stabilisation options provided for in sections 10 to 12 of this Act.
	(4) The Treasury must by regulations make provision enabling rescued former building societies to reconstitute themselves as building societies within the meaning of the 1986 Act.
	(5) Regulations under subsection (4) may
	(a) disapply or modify the effect of a provision of an enactment, or
	(b) disapply or modify the effect of a rule of law not set out in legislation.
	(6) Regulations under subsection (4)
	(a) shall be made by statutory instrument, and
	(b) shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.

Harry Cohen: I thank Mr. Speaker for selecting this new clause.
	A lot has happened in a short period in relation to the banks and the economy, and the situation has moved on rapidly. However, I do not want to fail to deal with the issue of excessive bonuses, which has rightly enraged the publicour constituents. The new clause addresses that. It refers to the Treasury making
	regulations on the remuneration of senior staff of rescued banks
	such that
	senior staff are given no financial incentive to take unnecessary and excessive risks that threaten the value of the rescued bank,
	such that
	a rescued bank may recover from a senior member of staff any bonus or similar payment which is based on statements which are later shown to be materially inaccurate
	and such that
	a rescued bank may make no golden parachute payment to its senior staff.
	That wording is not the whim of a left-wing Labour Back Bencher, nor is it anti-banker vindictiveness, although I feel a bit of that, as do my constituents. Its provisions were written into the $700 billion Paulson bail-out package by the US Congress, and this wording is the closest I can get to that. I thank the Library and the Public Bill Office staff for drafting it in that way. Congress has a Republican majority, but both Republicans and Democrats required those provisions to be included in any bail-out proposal.
	The truth is that the level of bonuses has been an absolute scandal. It is totally unacceptable that there should be any bonuses if it is taxpayers' money that saved the institution from failure. It is unbelievable that directors are paid for failure and for jeopardising the public interest, at a time when they are costing taxpayers a great deal of money, when they are jeopardising their customers' livelihoods and those of countless businesses and individuals, and when they have got into a situation where the banks own a huge amount of toxic debt and effectively seize up. In those circumstances, bonuses should not be paidin fact, they should be clawed back from the directors who got the bank into that situation. The new clause would require that no bonuses should be paid for risky activities and that we get some repayment where they have been paid on a false or inaccurate basis. That is what the US Congress said; that is what we should say as well.
	The new clause applies to the rescued banks package, and I wanted to tie it to the US Congress provisions, but it should apply not only to the rescued banks but to all the banks. They are all part of the bail-out process. Even if they are not benefiting from the direct recapitalisation in terms of preference shares, other parts of the package referred to 200 billion being available in short-term loans from the Bank of Englandthat went up from 100 billionand to 250 billion in loan guarantees being made available at commercial rates to encourage banks to lend to each other. Those are huge sums of public money that have gone to banks other than the rescued banks that we have taken preferential shares in, and they should also be subject to restraint and control over bonuses.

Peter Bone: I can see the logic of the hon. Gentleman's opening arguments, because it is normal, when one invests a lot of money in an organisation, to put terms and conditions on to it. I am rather surprised that that has not happened with the 37 billion that we pumped into three banks. I agree with him in that regard. However, he is stretching it a little to include other banks where direct investment has not occurred.

Harry Cohen: That is not in my amendment, because my amendment relates to rescued banks. However, we have still given money and support to those banks because they would have failed if there had not been some Government support, in other ways, through the Bank of England. I think that the measure should apply to other speculative financial vehicles such as hedge funds, but that is not in my amendment. It is quite wrong that their directors take vast sums in remuneration and bonuses, again for reckless policies, and walk away when they go broke. The FSA has a regulatory role to play, so what is it doing about that?
	I have looked at the past few months' issues of the Labour Research Department's  Fact Service for examples of City bankers' bonuses. If I had gone back a year, there would have been scores of them, but even in the past few months there have been some. A report on City fat cats in the 14 August issue said:
	The credit crunch does not seem to have affected the big hitters in the City all that much. The table across shows the highest paid directors at 29 companies, who were each on over 1 million a year. The total pay bill for the 29 comes to a staggering 195.8 millionan average pay packet of 6.8 million.
	According to the table, one director at Barclays got 18,100,000, and someone at Barclays Global Investors got 1,102,000. A director at Goldman Sachs got 11,738,000, and someone at Citigroup, which has just been rescued by the US, got 2,426,000. At the top of the table, a director at Sloane Robinson LLP got a massive 51,411,000, and someone at Odey Asset Management got 27,937,000. One more that I have marked up is the 2,091,000 that went to a director at Financial Risk Management, which took great financial riskswe all know thatbut it lost, so I do not think that sum is appropriate.
	An article entitled, Directors' pay ratchets ever upwards, in the 18 September issue of  Fact Service said:
	Directors who served on the boards of the top-ranked FTSE 100 companies earned a combined package of 979.2 million last year. Their total salary packages grew by 5 per cent. compared with the previous year, according to the latest survey on executive pay by the  Guardian newspaper and Reward Technology Forum. Four of the top 10 highest earners work in the banking or the financial services sector.
	It went on:
	Barclays president Bob Diamond made a little over 18 million, though he collected another 14 million from a three-year performance plan shortly after the financial year end.
	Some performance!

Diane Abbott: Even if hon. Members do not agree that bonuses are wrong in principle, they must surely agree that they are wrong in practice, because those bonuses were tied to the sale of products that we now find are worthless. Does my hon. Friend agree that unless something is done about the bonus regime in the City, people will continue to follow risky, short-term strategies to secure high bonuses at the expense of the long-term health of companies and the economy?

Harry Cohen: That is absolutely right. I agree that the bonus culture must be tackled effectively now. There is even a case for back-dating that approach in relation to directors who got us into this mess and made those worthless investments.
	An article entitled, Finance directors on over 1 million a year, in the 10 October issue of  Fact Service, reports:
	Some 49 out of the 92 finance directors of the FTSE 100 companies have now joined the millionaires' club, up from 41 out of 96 last year...Some of the largest bonuses this year have been paid to financial directors in the banking and financial services sector.
	It adds that
	there has of course been a meltdown with the government coming to the rescue of the finance sector. The rescue plan means an end to big bonuses based on easily met performance targets.
	But does it mean an end? That is the point of my amendment; I am saying that it should. The article goes on to say that
	to take part in the rescue plan, banks will have to sign an agreement on executive pay.
	Are we going to see those agreements? That is another question that needs to be asked.
	On 6 November, the Fact Service reported, under the heading City fat cats:
	Some people in the City don't have to worry about the London Living wage. The unnamed highest paid director at finance group Jupiter Asset Management had a good 2007 picking up 13.56 million in pay and bonuses, according to accounts filed at the company watchdog Companies House.
	That is wrong. Such payments are certainly wrong in this climate, and they must be brought to a halt.
	That is Congress's view, and it is my view. If the Minister does not want this provision, because he rejects the wording or wants some other formula involving the FSA or the need for agreements on executive pay and dividends, that will leave questions unanswered. How would such a scheme be implemented by the FSA? Would there be a policy of no bonuses? If bonuses are to be paid, on what basis would they be paid? Will there be any limits placed on them? What controls will be placed on them? What about those people who have already been paid on a false prospectus? Will there be any claw-back by the FSA in regard to the failed company directors who have got us into this mess? Will the provision apply to all banks, or just to those that have been rescued? Will it apply to speculative financial vehicles such as hedge funds? How will the FSA report? Will the agreements be published and placed in the public domain? I think that they should be.
	Our constituents demand an absolute end to the bonus culture in the City. It has served this country badly and got us into a mess. It has put our people's livelihoods and our country's economy at great risk. The people who have taken their rewards should now pay the price.

Peter Bone: It is a great pleasure to follow the hon. Member for Leyton and Wanstead (Harry Cohen). He made his case with typical honesty and straightforwardness and I have a lot of sympathy with his remarks.
	I was in business before I came into the House and, at one time, we were expanding the company with an investment of 100,000 from the Treasury into preference shares. Under that agreement, there were strict restrictions on our emoluments while those preference shares were being held. Until we had repaid them, we had to comply with those conditions. That seemed absolutely fair to me. We were receiving an investment from the Government, and it would have been unwise and unfair for the directors of the company to settle their own salaries.
	When looking at new clause 1, we need briefly to refer back to what has happened with the recapitalisation of the three banks, in which 37 billion of taxpayers' money is being invested this month and next month. I have one of the offer documents here; this one happens to be the one that pertains to HBOS. It is quite extraordinary that it contains very limited discussion on bonuses. It states:
	For the company, no bonuses for 2008. If part of contractual arrangement, directors relinquish these voluntarily.
	That is the condition that applies to HBOS. The document goes on:
	For Lloyds TSB, no cash bonuses for 2008.
	That sounds quite good, but it goes on to say:
	If part of contractual arrangement, board directors relinquish these voluntarily. Instead, Lloyds TSB's directors may receive their 2008 bonus entitlement in stock, subject to a restriction on sale until December 2009.
	So there is effectively no restriction whatever on the bonuses.
	If this 37 billion of investment were such a superb deal for the taxpayer, I might have had some sympathy with the lack of a requirement to control directors' salaries and emoluments. However, there will be no return to the taxpayer on that 37 billion for a minimum of five years. The Minister might want to pop up and say that the 9 billion of preference shares will mean a 12 per cent. return, but that is not true. They are non-cumulative preference shares, so that the directors of the company can waive that dividend every year until the preference shares are repaid. They cannot be repaid for five years, and I would argue that the directors have a duty to waive that dividend, because they have to look after the interests of the whole company.
	Taxpayers have therefore invested 37 billion in banks with no return for five years, and we have not bothered to say anything about the bonuses or salaries of the directors. We cannot do anything about that in this Bill, but it is an issue that we should address. I sat in Committee for many an hour and we briefly discussed this issue, but it did not get the airing that it deserved. We hope that the special resolution mechanism will never be needed, but if it is, we have been lax in failing to control the salaries of directors who, after all, put the banks in that situation. I have much sympathy with the hon. Member for Leyton and Wanstead and what he is trying to achieve. As he rightly points out, we are copying what has happened in the US.
	Unfortunately, the Government have spent 37 billion of our money with no real restrictions on the bonuses of directors. I notice that the Minister has not jumped up to contradict me.

Ian Pearson: I shall address the hon. Gentleman's points in a few moments.

Peter Bone: I am grateful for that assurance, but if he made his points now, I could contradict what he said. I urge the House to take this matter seriously. People are struggling. Constituents of mine are trying to secure an extension to their business loan of 10,000. They are being asked to pay a charge for that, and being charged higher interest. That is unacceptable when every person in this country, man, woman and child, has paid more than 600 each to the banks to recapitalise them. Such loans should be made easier. The businesses should not have to go through a lot of kerfuffle. I have been in business and I know what it is like to have to go and see the bank manager  [ Interruption. ] The Minister asks what this has to do with the new clause, but that is the problem with this Government. They do not recognise that these directors, who are on huge salaries, are not getting the money to the small businesses and, as a result, they are closing up and down the country every day. This is an opportunity for this House to say what we feel about directors' emoluments, and I think that the hon. Member for Leyton and Wanstead made a very good case.

David Taylor: I speak in support of new clause 2, which I tabled, on the reversion of rescued former building societies to mutual status. It is supported by my hon. Friends the Members for West Bromwich, West (Mr. Bailey) and for Stroud (Mr. Drew).
	In the immediate aftermath of the American civil war, northern Republicans schlepped en masse to the defeated south, where they joined the local Republican parties. The newcomers quickly took control in several former Confederate states, dragging their political machines into line with their cousins in the north. Those transient opportunists had arrived in the south with their belongings carried in holdalls fashioned from old carpets, giving rise to their nickname of carpetbaggers. The name persists in use today.
	Sadly, the story of the demutualisation of building societies gave rise to its own breed of carpetbaggers, oily opportunists whose mercenary profiteering would lead some former building societies to abandon their traditional strengths and sow the seeds of their recent and current vulnerability. Every one of the building societies that demutualised and listed on the stock exchangefrom Abbey National in 1989 to Bradford  Bingley in 2000has either failed or had to be rescued. Included among them is the largest of allthe Halifax building society. I have been a depositor with the Halifax all my working life, from being a paper boy onwards, and I have been a Halifax mortgage holder all my married life as well. In the long, hot summer of 1997, 75 per cent. of the 7 million members of the Halifax building society voted on demutualisation: 97 per cent. voted for and a glorious 3 per cent.including David Taylor of LE67 2QPvoted against. One gets no credit for saying, I told you so, but I told you so.
	The wave of deregulation that swept across the financial sector inflated the status and salaries of corporate managers. It gifted money for nothing to speculative investors. It fed into, and fed off, the boom in housing ownership, with its corollarymortgages.
	Borrowers lost out as well. The building societies' ability to offer cheaper loans to their customers disappeared, as they became virtually indistinguishable from banks. The communities that they served lost the familiar services that they had relied on. The ethical grounding of member-oriented services evaporated. We had come to the high point of the Thatcher erathe deregulation introduced by the UK's Building Societies Act 1986 paved the way for banks and building societies to go head to head, competing in the same space for the same customers and using the same products.
	By converting into banks, the former building societies gained greater access to wholesale borrowing, new types of investors and the unrestricted use of financial instruments such as securitisation. The collapse of Northern Rock and Bradford  Bingley can be interpreted in the light of their access to those new sources of funding, and to their uses of financial instruments that were either unavailable or antithetical to the mutual societies.
	The 1986 Act removed the Chinese walls between the two kinds of financial institution. In offering demutualisation, it created the means to sell out long-term security for short-term profit. In 2001, Cambridge university's Centre for Business Research produced a working paper on the topic, and it quoted a senior manager of the Halifax before demutualisation, who said:
	All arguments for conversion are fairly arcane as far as our members are concerned. The single argument that will convince them is the release-of-value argument.

Diane Abbott: Does my hon. Friend agree that there is an interesting parallel with the situation in the US, where Fannie Mae and Freddie Macrobust, new deal institutionswere deregulated at about the same time? The results for the American financial system were similarly terrible.

David Taylor: I shall be coming to that point, but my hon. Friend has identified a good and close parallel.
	To paraphrase the manager of the then Halifax building society, offer people a sufficient amount of money and you can convince them of anything. In circumstances that had never been seen before, building society members stood to receive windfalls for doing little more than turning up and voting. Unsurprisingly, that led to significant numbers of speculators opening an account for the minimum necessary amount, gaining voting rights and thereby shamelessly manipulating society votes in favour of demutualisation.
	Even at the time, the benefits were questionable. On the basis of a projected payout of 2,000 per head, Bradford  Bingley members voted for conversion, but in reality the average conversion turned out to be worth less than one third of that, at 650. Customers with modest savings doubtless benefited from the effort-free handouts on offer, but those with more substantial sums invested were trading short-term gains for long-term losses. In many cases, people with their life savings invested in mutual institutions would have made far more in interest alone over the past 10 years than the few hundred pounds that they walked away with at the time. When they lost their mutual status, the building societies lost their ability to offer higher interest rates, and they also lost their security.
	However, the incentives for senior managers were never in doubt. The pay increases that come with executive management of investor-owned rather than mutual companies guarantee positions in the newly created and higher-status organisations. The urge to increase the business rather than improve the service, as well as profit-linked salaries and a generous dollop of testosterone, all help to drive executive enthusiasm for conversion. We can still feel the power surging through the boardrooms of the former building societies 10 years ago, even though we are 10 years on.
	In the case of the Cheltenham  Gloucester takeover by Lloyds, as it then was, sweeteners included share options for the chief executive worth four times his salary, as well as cash payments to the chairman, the chief executive and their families totalling nearly 100,000. The figures from the demutualisation vote of Bradford  Bingley in 2000 paint a picture that was replicated in many conversion votes throughout the '90s. The following is a direct quote from the paper to which I referred earlier:
	the legislative requirements on voter turnout and voting support required for investors were set at higher thresholds than those for borrowers. In the case of investors, turnout and support requirements were 50 per cent. and 75 per cent. respectively, while in the case of borrowers there was no turnout requirement and only support by a majority vote was required for a conversion resolution to pass. Although the high thresholds set for investor members were intended to provide protection for the borrowers, in practice they may also have made it more likely that investors would vote, so tilting the outcome in favour of conversion...although overall the vote was in favour of conversion (62 per cent.), 60 per cent. of borrowers who took part voted in favour of the society remaining mutual. The result did not pass the statutory hurdle for conversion decision to go ahead; it was the board
	what a surprise
	which took the decision to initiate conversion proceedings on the basis of the result.
	I would like to see an opportunity for re-mutualisation. Mutual savings organisations are owned by their members. Members have a vote, and so a voice, in decision making. The company is incentivised to work for the interests of its members, not its shareholders, and still less its financiers. We must not forget that mutuals can often offer better savings and borrowing rates. They are an investment for the long term. They offer security and dependability.
	According to two independent surveys in the late 1990s, mutual building societies consistently offered the best loans over a variety of payment periods. The surveys found that nine of the 10 cheapest lenders in the UK were mutuals. Another survey shows that the cheapest 30 lenders throughout the 1990s, and the 10-year period in question, were all building societies. There is evidence, cited in the paper that I mentioned, that demutualisation exacerbates financial exclusion. The total number of building societies has fallen from more than 200 to fewer than 60 in the past 25 years. Financial institutions were merged or taken over, and their branches rationalised in the drive for efficiency.
	The recognisable, reliable andabove allreachable branches that served many of the poorest and most vulnerable in communities across the country, including in North-West Leicestershire, have disappeared in the stampede towards petty pecuniary advantage. That was not just morally wrong, but largely mistaken. Work done during the height of the fad for demutualisation showed that building societies have tended to operate with greater efficiency and higher and less volatile profitability than commercial banks. It is surely no coincidence that credit unions have increasingly filled the gap left by the evisceration of mutual institutions.
	The need for stable, low-interest loans never went away, even during Labour's years of record economic growth and reinvestment in infrastructure and public services. The reach of mutuals is still short, however, and the respite that they provide to struggling families will be stretched in what will no doubt be a discontented winter.
	I close my remarks with a point made by the finest and greatest of the post-war Labour Prime Ministers, Harold Wilson. He said that our party
	is a moral crusade or it is nothing.
	For 10 years, we have helped to foster the best of times; we must now reach out to the most vulnerable among us in the worst of times. We in this House, whose job it is to take time to consider such matters, owe it to those in this country whose primary concern is to feed, clothe and support our families, to do whatever it takes to help them to achieve financial inclusion and security. Back in the year 2000, my party's Government, who have had so many remarkable successes, singularly failed on a number of occasions to show the leadership necessary to stem the tide of carpetbagging and demutualisation. A number of Members of this House were gravely concerned at the predatory actions of well-organised groups of carpetbaggers, stalking the mutual sector for easy pickings from which almost effortlessly to extract profits.
	The Prime Minister was asked whether he shared many of the concerns of my hon. Friend the Member for Leyton and Wanstead (Harry Cohen) about the behaviour of carpetbaggers. The obvious moral odiousness of that behaviour presents a significant threat to the ability of building societies to provide resources for affordable housing to those on low incomes.

Bob Spink: I could not allow the hon. Gentleman's contribution to pass without asking him why he does not shift his account from the Halifax to the Nationwide building society, with which I have had an account all my life. It is still a mutual. Would it not be better to allow people choice, and to encourage his constituents and mine to support the existing mutuals? There are still plenty of them around.

David Taylor: Of course. I have opened accounts in building societies and in credit unions, too, so I am consistent on this topic.
	The Prime Minister was asked about the matter, and his foray into the debate was a triumph of equivocation:
	Only a society's board can propose conversion, which requires the support of 75 per cent. of saving members on a 50 per cent. turnout and 50 per cent. of borrowers who vote. Those are high thresholds, which have been reinforced by our action, but it is right that they are high. The current balance is correct.
	It appears in retrospect, however, that those thresholds were not high enough, as the votes did not represent members' sentiments fairly, so the balance was not correct. We have seen a series of mergers, takeovers and part-nationalisations of former building societies in the past turbulent and unprecedented year, and they have largely taken place well after opportunistic investors have cashed in and moved on, carpetbags filled with windfall payments. Mutual organisations offer longevity, security and service in a manner that is completely alien to modern banking practices. I urge hon. Members on both sides of the House to support the new clause for the benefit of all those among us who have neither the time nor the voice to speak today. I commend the measure to the House, and I reserve the right to move it formally at the end of the debate.

Adrian Bailey: I support the measure proposed by my hon. Friend the Member for North-West Leicestershire (David Taylor), and I wish to make it clear that as chairman of the all-party group on building societies and financial mutuals, I completely endorse his arguments.
	When the vote on Halifax demutualisation was held, I was one of the 3 per cent. [Interruption.] Indeed, my hon. Friends were, too. To anticipate an intervention from the hon. Member for Castle Point (Bob Spink), may I make it clear that my deposit is honourably held by the West Bromwich building society, which has retained its mutual status? The all-party group has conducted a number of exercises that clearly demonstrate the important role that the mutual sector plays in the financial services industry, and the added advantage that it brings not just to the financial services sector as a whole but to individual investors and borrowers.
	The all-party group held a Select Committee-style inquiry that sought to examine the relative advantages of the mutual sector in providing value for money compared with the proprietary banking sector. That inquiry clearly demonstrated that, by and large, building societies provided higher rates of interest for investors and lower mortgage rates for borrowers. Even today, if one looks at the tables of best buys in most of the Sunday newspapers, that practice is substantiated by building societies' high ranking in comparison with banks.
	We held another inquiry on the impact of demutualisation on people who had invested in the relevant organisations both before and after demutualisation, which clearly demonstrated that, on the basis of the figures, anyone who received a windfall from a demutualised bank subsequently lost the benefit of that windfall in the organisation's relatively poor performance and deals. In practice, that process was not financially advantageous to people who had formerly been members of the building society. We invited a range of people from all sectorsbanks that had been mutuals, building societies, and even carpetbaggersto that Select Committee-style inquiry to give evidence. I treasure one particular letter. The chief executive of Northern Rock declined to appear before the committeesurprise, surprisebut he submitted a letter stating that Northern Rock was very competitive, that it provided value for money and that its 100 and 120 per cent. mortgages were incredibly popular among consumers.
	I understand that there are potential financial obstacles to the adoption of new clause 2. It is designed to set a legal framework, which, notwithstanding such financial obstacles, would at least ensure no legal impediment in the event of its being a financially viable option in future.
	For the sake of brevity, I will not develop my argument for too long. I note that clause 72 allows the Treasury to take a building society into temporary public ownership by order. New clause 2 provides an equivalent reverse process for the Treasury to provide a legal mechanism by which former banks could be rescued and put into mutual ownership. I would be very interested to hear the Minister's response on that point, because it is important that we have a legal framework which, notwithstanding any financial considerations, provides a level playing field and recognises the unique role played by building societies in financial services in this country.

Ian Pearson: My hon. Friend the Member for Leyton and Wanstead (Harry Cohen) has raised an important subject of significant public concern. The Prime Minister has said that he wants to see an end to the reckless City bonus culture. I assure him that the Government have already implemented certain conditions concerning the remuneration policies of the three banks that participated in recapitalisation, and those conditions apply in both the short and long terms.
	In 2008, the Government expect no cash bonus to be paid to board members of those banks. Incentive schemes will be reviewed and linked to long-term value creation, taking account of risk and restricting the potential of rewards for failure. Any firm participating in the recapitalisation scheme will be bound by the FSA code on non-executive, risk-based remuneration, as well as by industry best practice on executive remuneration and severancefor instance, the guidance issued by the CBI and the Association of British Insurers. That will help to ensure that remuneration policies are aligned with sound risk management systems and controls, linking earnings to the creation of long-term value not short-term indicators, thereby protecting the interests of taxpayers and shareholders.
	The three banks currently participating in the recapitalisation scheme have signed up to those conditions. As the Chancellor made clear in his statement on the bank recapitalisation scheme on 18 November, any provision of capital under the scheme in the future to other eligible financial institutions will carry terms and conditions that appropriately reflect the financial commitment made by the taxpayer, including terms and conditions on remuneration.

Peter Bone: Will the Minister say where the restrictions on the three banks that have participated in recapitalisation are stated? Which document? Which line? Which paragraph?

Ian Pearson: I was about to address that point and respond to the hon. Gentleman's contribution. The conditions on remuneration imposed on the banks accessing the recapitalisation scheme are in the public domainthey are part of the placing agreements, which have been placed in the House of Commons Library. The hon. Gentleman seemed to say that the Government are getting nothing out of the banks' recapitalisation, but let me correct him on one point. Payment on the coupon of the preference shares is not deferrable; they are non-cumulative preference shares, and we expect to get paid as a Government. If he is suggesting that the Government should not have taken the decision to recapitalise the banks to protect the stability of the financial system and depositors, he is simply wrong. The action that we have taken has been widely welcomed, many other countries have adopted the approach and the UK has led the way in ensuring that banks have the capital requirements that they need on liquidity and on credit guarantees.
	My hon. Friend the Member for Leyton and Wanstead asked what the FSA is doing on remuneration, and I want to be clear to him that the FSA is conducting a review of executive remuneration and regulation. It has written to the chief executive officers of the major banks, setting out good practice on remuneration. Looking forward, I should say that the FSA intends to take account of UK firms' adherence to the principles of good practice on remuneration when assessing risk, and it is important that it does so.
	Let me directly address the point of my hon. Friend's new clause, which seeks to introduce some quite extensive new regulations. I hope that through what I have said, I have reassured him that, when the Government have acted on bank recapitalisation, we have taken a strict line on executive remuneration. We have said clearly and up front that access to the recapitalisation scheme is subject to the remuneration conditions that were determined as part of the discussions about the Government's investment. We think that that is the right approach, because it gives the banks certainty about what is expected of them. It is our clear view that we have no reason to believe that the conditionality imposed on the banks participating in the recapitalisation scheme will not be followed. We will of course monitor the situation, not least through the appointment of non-executive directors, but we do not currently believe that there is a case for regulation.

Diane Abbott: My hon. Friend the Minister says that he sees no reason why the conditionality that the Government have imposed on payments and bonuses should not be followed, but the conditionality imposed on lending money has blatantly not been followed. Why does he think that one set of conditions will work when another patently has not?

Ian Pearson: Directors of the recapitalised banks are very much in the public eye and will continue to be so for the foreseeable future. We have been very clear about the conditionality that we want on executive remuneration, and we will continue in that manner. We have powers to monitor the banks, and we have absolutely no reason to believe that they will not continue to take a fair and appropriate line on directors' pay and executive bonuses. We certainly do not condone any reward for failure, and we expect the relevant bank's board to support the removal of any directors for a failure to deliver against their agreed strategic objectives.

John McDonnell: There is an element of incredulity about the Minister's statement. Can we just be clear? The Government lent those banksthose finance houses37 billion. In return, we expected them to show some restraint on repossessions, yet Northern Rock is repossessing faster than any other financial institution. We expected them, as a result of the money, to be able to lend between themselves and stimulate the banking economy once again, yet they refuse to lend. What, therefore, gives the Minister any confidence in the idea that they will also restrain their pay? The FSA has significantly failed up until now, and the conditions have failed up until now.

Ian Pearson: I say clearly to my hon. Friend that we are continuing the dialogue with the banks in which we have taken investments through the capitalisation schemeand the banks as a wholeabout making lending available at competitive prices for new mortgages and small businesses. I am certainly aware of the public concern about this issue. The banks are as well, and we will continue to ensure that they fulfil the conditions that they have agreed to as part of the recapitalisation scheme. It is right and proper that we should do so.

Harry Cohen: rose

Ian Pearson: I shall give way, but I shall then make progress and move on to new clause 2.

Harry Cohen: I am grateful to the Minister for giving way. I heard what he said about the banks that are not in the rescue scheme. They include big players, which have given big bonuses to their peopleand their people have made some big mistakes, causing crisis. What the Minister said sounded very thin. Basically, he said that we had to monitor the situation and that the issue was in the hands of the FSA, which has a record of being weak. Even the shareholders of banks such as Barclays are being treated badly, given the expensive deal with the Arabs, and those shareholders cannot make many inroads with the bank directors. Can the Minister not at least strengthen the shareholders, or do something else to bring these people to account?

Ian Pearson: Barclays, of course, is not one of the banks to have taken advantage of the recapitalisation scheme. However, as part of their agreements with the Government, the banks that have are subject to a series of conditions. We expect those conditionswhether on executive pay, mortgage lending or loans to small businessesto be followed and implemented.

Patrick Cormack: Will the Minister give way?

Ian Pearson: If the hon. Gentleman allows me, I shall make some progress. I want to move on to new clause 2, which has been tabled by my hon. Friends the Members for Stroud (Mr. Drew) and for West Bromwich, West (Mr. Bailey).
	The circumstances in respect of the new clause include cases in which a building society has been or is subject to a transfer of securities or properties under the relevant sections of the Banking (Special Provisions) Act 2008, cases in which it is participating in the bank recapitalisation scheme announced by the Chancellor, and cases in which it is subject to the stabilisation options provided for in part 1 of the Bill.
	First and foremost, I want to assure my hon. Friends that the Government value the contribution made by the mutual sector to financial services and that we are genuinely committed to preserving mutuality. We need to have other debates, so I hope that I can briefly convince my hon. Friends that the new clause is not needed. First, I stress that a bank's conversion to mutual status, including the remutualisation of a former building society, is already possible under existing legislation. It could be achieved by the transfer of the property and liabilities of the bank to a building societyan existing one, or one newly created for the purpose. What happened with Bristol and West is an example of that procedure. It was a former building society that was sold to Britannia and thereby remutualised. Further regulations enabling the process in the particular circumstances to which the new clause refers are simply not necessary. The powers are already there. I hope that I have given my hon. Friends the reassurances that they seek.

Harry Cohen: I am not going to press my new clause to a Division. [Hon. Members: Go on!] I hear what the House is saying, but I must have regard to the time. I want to say to the Minister only that we are monitoring the situation; I certainly am. We, and the public, really expect the Government to be stronger in these matters and to say that a bonus culture has ended for these City slickers. I beg to ask leave to withdraw the motion.
	 Motion and clause, by leave, withdrawn.

New Clause 3
	  
	Safeguards for partial property transfers

'(1) The Treasury must prepare and publish an annual assessment of the efficacy of the safeguards relating to partial property transfers under Part 1 of this Act.
	(2) In preparing each assessment the Treasury must consult the Banking Liaison Panel constituted under section 10.
	(3) If an assessment indicates that the safeguards are inadequate the Treasury must make proposals for strengthening them.
	(4) Each assessment published under this section must be laid before Parliament.
	(5) A Minister of the Crown must make a motion in the House of Commons related to the assessment not more than three months after the assessment was laid before Parliament.'. [Mr. Gauke.]
	 Brought up, and read the First time.

David Gauke: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss the following: new clause 4 Exemption of bank directors from liability 
	'(1) The Treasury may by order exempt directors of a bank for which the stabilisation powers have been exercised, or of any group undertaking of any such bank, from liability in connection with acts and omissions in relation to the bank or undertaking.
	(2) Any such order
	(a) shall be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.'.
	New clause 5 Protection of bank customers 
	'(1) The Treasury may by order amend Part 16 of the Financial Services and Markets Act 2000 for the purposes of protecting the position of customers of a bank for which the stabilisation powers have been exercised.
	(2) Any such order
	(a) shall be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.'.
	Amendment No. 3, page 36, line 5, leave out Clause 72.
	Government amendment No. 38
	Amendment No. 1, in clause 72, page 36, line 42, at end insert
	'(9) No order under this section may amend this Act.'.
	Amendment No. 2, page 36, line 42, at end insert
	'(9) This section shall cease to have effect at the end of the period of two years beginning with the day on which this Act is passed.'.

David Gauke: I draw the attention of the House to my entry in the Register of Members' Interests.
	The amendments and new clauses relate to issues affecting the safeguard on partial property transfer, which applies in circumstances where some assets are transferred out of a bank with a view to a private sector purchase. There is no need for me to rehearse all the arguments that we discussed at some length in Committee; in summary, counterparties of an original bank may find themselves prejudiced when there is a transfer of some of the property of that bank, because they find that they are the counterparty of two different institutions, or possibly more, and are unable to net or set off contracts because those contracts are now with those different parties.
	Even the potential of that situation creates significant problems because it may mean that legal opinions cannot be given as to the creditworthiness or security of a particular transaction. That could result in increased costs of capital for UK banks, higher regulatory capital requirements and ultimately an adverse effect for the competitiveness of UK banks. The matter has provoked considerable interest from outside bodies. To be fair, the Government recognise the issue, and have made some changes in draft legislation, particularly concerning the carve-out from potential partial transfer, and they have created a banking liaison panel, which we welcome.
	Safeguards will be placed in secondary legislation, but concerns remain. We are not in a position to assess the strength of the safeguards fully because that secondary legislation has not reached its final form. It would be helpful to hear some reassurance from the Economic Secretary that that secondary legislation will be in effect at the time when the Bill comes into effect. It is essential that all the safeguards are contained in secondary legislation, rather than in the code of practice. Legal opinions can be given only on secondary legislation; a code of practice will not be sufficient for lawyers in such circumstances.
	This is an important and ongoing matter, and the Government's position is moving constantly, which is perhaps understandable, but this means that the House is not in a position to make a full assessment of the efficacy of the safeguards, and consequently, in new clause 3, we propose an annual assessment and an opportunity for Parliament to debate the matter further so that the Treasury can provide reassurance that the safeguards are adequate.
	Briefly, I shall outline some of the other amendments and new clauses. We are concerned about what is now clause 72it was clause 65 in Committeebecause it gives the Government the ability to change the law by order. There are constitutional issues involved; it is a Henry VIII clause, which amendment No. 3 would delete altogether. In Committee, the Economic Secretary outlined particular areas where he considered it necessary to have powers to amend the law, two of which concerned related directorships and shadow directorships. We attempt to address those points in new clause 4, and we seek to address the financial ombudsman scheme in new clause 5. If the Economic Secretary were inclined to accept those clauses, we would argue that it would be unnecessary to have clause 72, unless he has some other examples.
	One point on which there has been genuine progress is our concern that clause 65, as it then was, could be used to amend protections in the Bill. I tabled an amendment to change that, and now the Government have done so as wellGovernment amendment No. 38. We welcome it, and we accept its wording.
	Amendment No. 2 would make clause 72 a sunset clause. We are not convinced that clause 72 is necessary. Unless the Government have strong reasons for it to remain, it would be helpful if it were removed, which should deal with any transitional provisions.
	I am keeping my remarks as brief as possible in order to allow the Minister to respond fully. In conclusion, we welcome the progress that we have seen, but we consider it vital for UK banks that we have adequate safeguards in partial property transfers and that we do not allow clause 72 to undermine those safeguards in any respect. We await the Minister's comments with interest.

Ian Pearson: The hon. Member for South-West Hertfordshire (Mr. Gauke) seeks in new clause 3 to impose a requirement on the Treasury to publish an annual assessment of the efficacy of the partial transfer safeguards.
	As the hon. Gentleman will be aware, we need to get the safeguards right, and I am absolutely committed to that. That is why I decided to establish an expert liaison group. Indeed, the stakeholder feedback that the Government have already received led us to introduce an amendment to the Bill to formalise the status of the group in primary legislation, as set out in clause 10. That move has been widely supported by the industry and, to be fair, by Opposition Members. When we are talking about such legislation at the level of technical detail that we often are, it is right to work with the experts and in effect co-produce the secondary legislation, in addition to keeping such matters under review.
	In putting the group on a statutory footing, it is implicit that the Government will have regard to its recommendations. Clause 10 therefore provides a mechanism for us to receive regular and expert feedback, to which we will pay due consideration. The Government consider it desirable to retain the flexibility to adjust and refine the safeguards in the light of experience. That is particularly important in the context of the set-off and netting safeguard, for instance, because those arrangements have proven to be a highly innovative field. Changes to the safeguard may be necessary to ensure not only that it continues to protect what it is intended to protect, but that innovations do not undermine the policy aims that the special resolution regime is intended to serve.
	I agree with the spirit of the new clause that the hon. Gentleman has tabled, in the sense that reviewing safeguards is important. However, that is best done through the mechanisms that I have outlined and which we are already putting in place, in particular the expert liaison group, rather than the approach that he suggests in new clause 3. If he reflects on that, I hope that he will decide not to press the new clause to a vote.
	As right hon. and hon. Members are aware, banks comprise complex, multi-jurisdictional corporate entities. Set against that background, many of the provisions of the special resolution regime interact with and sit alongside financial services, banking, company and insolvency law. It is therefore clear that the legislative environment is both complex and variedI think that the hon. Member for South-West Hertfordshire can see where I am going with this.
	There will inevitably be some degree of conflict between the public interest objectives of resolving a bank in severe financial difficulties and the provisions of legislation that are designed to work in relation to a normally functioning business. When hon. Members reflect on that for a moment, I hope that they will see that it is surely right. It is one thing to have legislation that applies to normally functioning businesses, but with a bank or building society failure, quite different and difficult circumstances arise. For that reason, we believe it is crucial to take a power to amend the provisions of primary and secondary legislation and common law, but to do so in a narrow way, which I will go on to explain in more detail.
	In the absence of such a power as provided for in clause 72, or clause 65 as it was in Committee, there is a real and significant risk that the authorities will not be able fully to effect a transfer, which could impact on the effectiveness of the powers in the Bill. That could lead to serious and adverse implications for the public interest through risks to financial stability, to the protection of depositors and to public funds. It could also impact on the likelihood of achieving a private sector solution.
	The purpose of the power is to provide the Treasury with the means to modify legislation to enable the powers of the special resolution regime to be used more effectively. This is set out in clause 72(1), which we debated at some length in Committee. I want to make it very clear that this is not a general power to amend legislation; it is targeted and limited. In particular, the power may be used only to facilitate the use of one of the stabilisation options, so the scope is severely constrained to amending legislation that affects the resolution of banks that are under the special resolution regime.
	I emphasised in Committee that the power would not be used to modify the Billa concern expressed by a number of hon. Members who contributed to the debate at the time. I highlighted the fact that the Treasury would not use clause 72 to amend the legislative safeguards either in the Bill or in secondary legislation made under it. It would be inappropriate to use the clause to amend the safeguards that we are putting in place. The Government have no intention to use the power in that way, which I want to make absolutely clear.
	I committed to discussing issues relating to legal certainty and the expert liaison group. I can inform the House that I will write to the group and undertake specific consultation on this very matter. In light of the ongoing consultation with stakeholders, the Government consider it appropriate to make it clear that the powers in clause 72 cannot be used to amend the Bill's provisions; we want to reflect the concerns expressed in Committee. This extends to primary legislation and any secondary legislation made under itso, for example, in relation to the netting safeguard, which is one of the key safeguards of particular interest to stakeholders, both the enabling power and the statutory instrument made may not be amended by the power. I hope that that addresses stakeholders' main concern about the power conferred in clause 72. We have directly responded to the concern and remain committed to working with the industry on issues relating to legal certainty. I believe that when it comes to transactions, it is vital for the industry to be able to have clean legal opinions. We will continue to work with the industry, but we believe that the provisions are appropriate, so we can give the industry the assurances it requires.
	In amendment No. 2, the hon. Member for South-West Hertfordshire proposes that a sunset provision be added to clause 72. This would provide the Treasury with the power to change the law for two years, but it would then lapse. I do not believe that the amendment would be in the public interest, so let me explain why. We cannot be sure that the hindrances and difficulties faced by the authorities in resolving any bank failures in the next two years will be the same as in a future period. It is possible, for example, that the nature of the banks being resolved will be different in subsequent years, with the result that different pieces of legislation need to be modified so that a successful resolution can be effected. In our view, therefore, a sunset provision is not appropriate because of the need to ensure that the legislation is future-proof as banks and financial markets develop over time.
	We reflected on that issue at some length in Committee. I think it is right that we try to future-proof legislation as much as possible, and we do not consider that a two-year sunset clause would be appropriate in this instance. That does not mean that I would reject the concept of the use of sunset clauses in other contexts. Indeed, as the hon. Gentleman knows, the Banking (Special Provisions) Act 2008 contains a sunset clause, which is not the least of the reasons for our present consideration of the Banking Bill.
	New clauses 4 and 5 would confer powers on the Treasury in relation to exempting directors and the financial services ombudsman. In Committee, as the hon. Member for South-West Hertfordshire mentioned, I cited specific instances in which the Treasury might use the power to change law. I understand that the hon. Gentleman wishes the Government to prescribe the pieces of legislation that they wish to amend, and to include them in the Bill. I must admit to feeling slightly guilty about selecting a couple of examples in an attempt to be helpful and clarify matters, and then discovering that I had probably not clarified matters to the hon. Gentleman's satisfaction.
	I accept that both new clauses give the Treasury certain powers that may be useful in resolution and may make the exercise of the stabilisation powers more effective. However, the examples that I gave in Committee were intended to illustrate the wider point that there are pieces of legislation that we can identify as needing to be amended, but others to which, as things stand, that does not apply. We cannot know the specific stabilisation options and the particular circumstances of a failing bank in the future, and what might need to be done.
	Even if the Government were to introduce measures such as new clauses 4 and 5, the powers in clause 72 would still be necessary. As I said in Committee, it is not possible to provide an exhaustive list of the legislative proposals that the Treasury may need to modify, because it is not possible to foresee each and every circumstance surrounding the failure of each bank and which pieces of legislation may be relevant to the resolution. If that were possibleagain, I explained this in Committeethere would be no grounds for taking the power, and we could and would have included the relevant changes in the Bill.
	The Government also consider it more appropriate to preserve the generality of the power by not introducing examples into the Bill. We do not think that it would be advantageous to give the impression in legislation that these were the only parts of law that the authorities might need to modify in order to effect a successful resolution.
	I recognise that clauses such as clause 72 are potentially controversial because they include a power to amend primary and secondary legislation by order, but they are not exceptional clauses. It is not the case that such measures have never been allowed through Parliament before. Nevertheless, it is right for them to be subject to rigorous scrutiny. I consider that our action in limiting the nature of the clause is appropriate. I hope I have reassured the House not only about the way in which the clause should be construed and the significant practical limitations of the power to amend law, but about why it is necessary for that power to be taken.

Patrick Cormack: The hon. Gentleman is a very mild-mannered man, and I am sure he would never wish to be dictatorial in any way. The fact of the matter is, however, that we have gone far too far with these Henry VIII clauses. The power of the Executive has increased and is increasing, and, in the famous words of Dunning's motion, ought to be diminished.

Ian Pearson: I understand that the hon. Gentleman takes a very close interest in how Parliament works, its traditions and the way in which its powers are exercised, and I also take that seriously. I would not want to be supporting a blunderbuss clause that just gives the Government the power to do anything they want if they decide that that is the right thing to do. That is why we have spent a lot of time ensuring we get the limitations imposed on clause 72 right. I believe this is now appropriate, and I hope I explained in Committee why that is the case. I also hope that the assurances I have given, particularly on the safeguards in both primary and secondary legislation, will give further reassurance to those outside stakeholders who are very interested in this part of the Bill.

David Gauke: I am grateful to the Minister for his remarks. He has tried to be helpful throughout, which, as he mentioned, has perhaps caused him one or two difficulties in the context of clause 72. There are concerns that are both constitutional, as my hon. Friend the Member for South Staffordshire (Sir Patrick Cormack) pointed out, and practical and business related in the degree of uncertainty created by clause 72. We voted extensively on this in Committee, and I am glad that the Minister is consulting with the liaison panel. We will, perhaps rather generously, not press for any Divisions on clause 72, but we hope that the other place will examine it much further and see whether it can be made more focused.
	New clause 3 relates to safeguards on partial property transfer. I almost detected a degree of sympathy for it from the Minister, because he recognises that it addresses a legitimate concern. It will enable the liaison panel to input its thoughts in this area. We would require the Treasury to consult with the business liaison panel in this area, and we think it would add a degree of protection to UK banks to know that if problems are being created by the legislation and the secondary legislation made under it, there will be an opportunity for Parliament to review it. The Treasury will be forced to review it, and consult if there are particular weaknesses. We think this would add significantly to the protections for the UK banking system and help further address the remaining concerns, so I will seek to press it to a vote.

Question put, That the clause be read a Second time:
	 The House divided: Ayes 171, Noes 264.

Question accordingly negatived.

New Clause 7
	  
	Debt responsibility mechanism

'After section 2C of the Bank of England Act 1998 (Financial Stability Committee: supplemental - inserted by section 225 above) insert
	2D Debt responsibility mechanism
	(1) The Financial Stability Committee must write to the FSA twice a year, setting out its assessment of financial stability and the FSA must have regard to that assessment in the exercise of its duties in respect of paragraph 4 of Schedule 6 to the Financial Services and Markets Act 2000 (threshold conditions: adequate resources).
	(2) The Financial Stability Committee must publish its letter and the FSA must publish its response.'. [Mr. Hoban.]
	 Brought up, and read the First time.

Mark Hoban: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss the following:
	Amendment No. 6, in clause 5, page 4, line 2, leave out 'and'.
	Amendment No. 7, in page 4, line 3, at end insert ', and
	(g) the meaning of financial stability.'.
	Amendment No. 4, in clause 93, page 46, line 6, at end insert
	'(5) Subsection (4) above does not take precedence over Schedule 6 to the Insolvency Act 1986.'.
	Government amendment No. 52.
	Amendment No. 15, in clause 222, page 107, line 19, leave out 'or other financial institution'.
	Amendment No. 16, in clause 223, page 107, line 28, leave out 'or other financial institution'.
	Amendment No. 18, in clause 225, page 108, line 21, at end insert
	'(3) In doing so, the court of directors must have regard to the guidance on financial stability given in the code of practice issued in accordance with section 5.'.

Mark Hoban: I am pleased that so many people are interested in the debate on new clause 7, which would add a further responsibility to a financial stability committee. The Bill establishes for the first time a committee of the Bank of England, which will be responsible for maintaining

Mr. Deputy Speaker: Order. Conversations are breaking out throughout the Chamber. Perhaps hon. Members who do not want to take part in the debate would like to leave the Chamber.

Mark Hoban: Thank you, Mr. Deputy Speaker. As I was saying, the Bill sets up the financial stability committee of the Bank of England, a sub-committee of the court of directors. Its role is to contribute towards protecting and enhancing the stability of the financial systems of the UKdescribed in the Bill as the financial stability objective.
	One of the issues that has developed over the course of the past 10 years is the build-up of an asset price bubble. We have seen the fastest rise in house prices in the developed world taking place in this country. That period of asset price rises has been fuelled by significant expansion in the levels of debt in the economy as a whole. That is why we enter this recession with the highest level of personal debt among major industrialised countries. In that 10-year period, while the FSA supervised the activities of individual financial institutions, no one had the role of monitoring and responding to overall levels of debt in the economyespecially since the Government introduced their reforms of financial regulation in 1997. That is a major omission that contributed to the asset price bubble that we see today, and the bursting of that bubble is causing misery to families and businesses up and down the country.
	We cannot allow that situation to go on. That is why we propose a debt responsibility mechanism, a form of macro-prudential regulation that will enable the Bank of England, as part of its process of identifying financial risks in the economy, to write to the FSA to require it to take into account its concerns about the level of debt, and to look at the way in which it supervises and monitors capital levels in individual financial institutions. This is an idea that we proposed towards the end of September. Since then, the Bank of England, in its financial stability report, has called for the introduction of macro-prudential regulation, echoing some of the concerns that we have had about the asset price bubble. That was followed by speeches by John Gieve and Charlie Bean, both executive directors of the Bank of England, so we believe that it is time to reform the regulation of the financial services sector to prevent the recreation in the future of further debt-fuelled asset price bubbles. New clause 7 gives us the opportunity to do so, and it will be a major improvement in the way in which we regulate the financial services sector
	 It being three hours after the commencement of proceedings on the motion , Mr. Deputy Speaker  p roceeded to p ut the Questions necessary for the disposal of the business to be concluded at that hour , pursuant to Order [this day].

Clause 1
	  
	Overview

Amendments made: No. 19, in page 1, line 18, after '28,', insert '29,'.
	No. 20, in page 1, line 18, after '30', insert ', 31'.
	No. 21, in page 1, line 19, after '43,', insert '44,'.
	No. 22, in line 19, leave out 'and 45' and insert '45 and 46'. [Mark Tami.]

Clause 60
	  
	Third party compensation: mandatory provision

Amendments made: No. 23, in page 29, line 21, leave out 'is wound up' and insert 'enters insolvency'.
	No. 24, in page 29, line 23, leave out 'been wound up' and insert 'entered insolvency'.
	No. 25, in page 29, leave out lines 31 and 32 and insert
	'(c) the reference to insolvency includes a reference to (i) liquidation, (ii) bank insolvency, (iii) administration, (iv) bank administration, (v) receivership, (vi) a composition with creditors, and (vii) a scheme of arrangement.'.
	No. 26, in page 30, leave out lines 12 and 13. [Mark Tami.]

Clause 62
	  
	General continuity obligation: property transfers

Amendments made: No. 27, in page 30, line 32, leave out 'a company' and insert 'anything'.
	No. 28, in line 32, after 'is', insert
	', or was immediately before the transfer,'.
	No. 29, in page 30, line 38, at end insert 'all or part of'.
	No. 30, in page 30, line 42, after 'business', insert ', or part of it,'. [Mark Tami.]

Clause 63
	  
	Special continuity obligations: property transfers

Amendment made: No. 31, in page 31, line 41, at end insert ', or part of it,'. [Mark Tami.]

Clause 64
	  
	General continuity obligations: share transfers

Amendments made: No. 32, in page 32, line 5, leave out 'a company' and insert 'anything'.
	No. 33, in page 32, line 7, at end insert
	'(whether or not it is also a group undertaking in relation to the transferred bank immediately after the transfer),'.
	No. 34, in page 32, line 24, leave out 'undertaking' and insert 'company'.
	No. 35, in page 32, line 31, at end insert
	'(8) The Bank of England may act under or by virtue of subsection (6) only with the consent of the Treasury.'. [Mark Tami.]

Clause 65
	  
	Special continuity obligations: share transfers

Amendment made: No. 36, in page 33, line 6, leave out 'transferee to operate the transferred business' and insert 'transferred bank to operate'. [Mark Tami.]

Clause 67
	  
	Continuity obligations: termination

Amendment made: No. 37, in page 33, line 40, at end insert
	'(4) A reference in subsection (1) to obligations under a section includes a reference to obligations under that section as applied under section [Special resolution regime: Continuity obligations: onward property transfers] or [Special resolution regime: Continuity obligations: onward share transfers].'. [Mark Tami.]

Clause 72
	  
	Power to change law

Amendment made: No. 38, in page 36, line 18, after 'enactment', insert
	'(other than a provision made by or under this Act)'. [Mark Tami.]

Clause 119
	  
	Rules

Amendment made: No. 39, in page 63, line 33, at end insert
	'(8) Section 413(2) of the Insolvency Act 1986 (rules: duty to consult Insolvency Rules Committee) shall not apply to the first set of rules which is made in reliance on this section.'. [Mark Tami.]

Clause 154
	  
	Rules

Amendment made: No. 40, in page 83, line 41, at end insert
	'(6) Section 413(2) of the Insolvency Act 1986 (rules: duty to consult Insolvency Rules Committee) shall not apply to the first set of rules which is made in reliance on this section.'. [Mark Tami.]
	 Amendment proposed: No. 5, in page 86, line 7, leave out clause 164 .[Mr. Hoban.]
	 Question put, That the amendment be made:
	 The House divided: Ayes 133, Noes 296.

Question accordingly negatived.

Clause 165
	  
	Special resolution regime

Amendments made: No. 41, in page 87, line 13, leave out 'contribute towards expenses connected' and insert 'to make payments in connection'.
	No. 42, in line 16, leave out 'contributions' and insert 'payments'.
	No. 43, in line 21, leave out 'contribute towards' and insert 'incur'.
	No. 44, in line 23, after 'incurred', insert
	'in connection with the exercise of the stabilisation power'.
	No. 45, in line 25, leave out 'contributed' and insert 'paid'.
	No. 46, in line 27, leave out 'contributions' and insert 'payments'.
	No. 47, in page 88, line 3, at end insert
	'(5A) Payments required to be made by the scheme by virtue of section [Special resolution regime: compensation: Sources of compensation of the Banking Act 2008 (special resolution regime: compensation) shall be treated for the purposes of subsection (4) as if required to be made under this section.
	(5B) The regulations may include provision for payments (including payments under those provisions of the Banking Act 2008) to be made
	(a) before verification in accordance with subsection (3)(b), and
	(b) before the calculation of the limit imposed by subsection (4), by reference to estimates of that limit and subject to any necessary later adjustment.'.
	No. 48, in page 88, line 11, leave out 'contributions' and insert 'payments'. [Mark Tami.]

Clause 186
	  
	Role of FSA

Amendment made: No. 49, in page 95, line 19, at end insert
	'(2) Before taking action under this Part in respect of a recognised inter-bank payment system the operator of which satisfies section 180(2), the Bank of England must consult the FSA.
	(3) If the FSA gives the Bank of England notice that the FSA is considering taking action in respect of the operator of a recognised inter-bank payment system who satisfies section 180(2), the Bank may not take action under this Part in respect of the operator unless
	(a) the FSA consents, or
	(b) the notice is withdrawn.'. [Mark Tami.]

Clause 188
	  
	Inspection: warrant

Amendment made: No. 50, in page 96, line 17, at end insert
	'(8) In the application of this section to Scotland
	(a) the reference to a justice of the peace includes a reference to a sheriff, and
	(b) ignore subsection (7).
	(9) In the application of this section to Northern Ireland
	(a) the reference to a justice of the peace is a reference to a lay magistrate, and
	(b) the reference to sections 15(5) to (8) and 16 of the Police and Criminal Evidence Act 1984 is a reference to the equivalent provisions of the Police and Criminal Evidence (Northern Ireland) Order 1989.'. [Mark Tami.]

Clause 191
	  
	Publication

Amendment made: No. 51, in page 96, line 42, at end insert
	'(2) The Bank may publish details of a sanction imposed under sections 192 to 194.'. [Mark Tami.]

Clause 193
	  
	Closure

Amendment made: No. 52, in page 97, leave out line 9 and insert
	'(a) threatens the stability of, or confidence in, the UK financial system, or
	(b) has serious consequences for business or other interests throughout the United Kingdom.'. [Mark Tami.]

Clause 195
	  
	Warning

Amendments made: No. 53, in page 98, line 2, at end insert 'or on another person'.
	No. 54, in line 4, after 'operator', insert 'or other person'.
	No. 55, in line 5, after 'operator', insert 'or other person'.
	No. 56, in line 5, leave out 'and'.
	No. 57, in line 6, at end insert
	', and
	(d) as soon as is reasonably practicable, give the operator or other person a notice stating whether or not the Bank intends to impose the sanction.'.
	No. 58, in line 8, leave out '191' and insert '191(1)'. [Mark Tami.]

Clause 196
	  
	Appeal

Amendments made: No. 59, in page 98, line 17, leave out subsections (1) and (2) and insert
	'(1) Where the Bank of England notifies a person under section 195(1)(d) that the Bank intends to impose a sanction, the person may appeal to the Financial Services and Markets Tribunal.
	(2) Where the Bank of England imposes a sanction on a person without notice in reliance on section 195(3), the person may appeal to the Financial Services and Markets Tribunal.'.
	No. 60, in line 29, leave out paragraph (b) and insert
	'(b) for section 133(9) of that Act substitute the proposition that a sanction may not be imposed while an appeal could be brought or is pending.'. [Mark Tami.]

Clause 212
	  
	Information

Amendments made: No. 61, in page 104, line 9, after 'of', insert
	'(a) '.
	No. 62, in line 10, at end insert
	'(b) details of anything done in contravention of this Part or banknote regulations or rules;
	(c) details of action taken under sections 215 to 218 (which may include details of the reason for the action and its result).'. [Mark Tami.]

Clause 214
	  
	Insolvency, c.

Amendment made: No. 63, in page 104, line 35, leave out subsection (3) and insert
	'(3) A right to rely on section 207 cannot be transferred by or acquired from an authorised bank (and, in particular, cannot be acquired by virtue of or in connection with anything done under Part 1).'. [Mark Tami.]

Clause 222
	  
	Consolidated Fund

Amendment made: No. 64, in page 107, line 22, leave out from 'assistance' to end of line 23 and insert
	'has the meaning given by section 244.'. [Mark Tami.]

Clause 233
	  
	Information

Amendment made: No. 65, in page 111, line 37, at end insert
	'(ba) the scheme manager of the Financial Services Compensation Scheme (established under Part 15 of the Financial Services and Markets Act 2000);'. [Mark Tami.]

Clause 238
	  
	Financial assistance to building societies

Amendments made: No. 66, in page 113, line 36, at end insert
	'(7) In this section, financial assistance has the meaning given by section 244.'.
	No. 67, in line 36, at end insert
	'(7) The Treasury may by order create exceptions to or otherwise modify the effect of section 9B of the Building Societies Act 1986 (restriction on creation of floating charges); and
	(a) the Treasury may make an order only if they think it is likely to help building societies to use, give effect to or take advantage of financial assistance of the kind specified in subsection (1),
	(b) an order may have effect in relation to transactions between building societies and persons not listed in subsection (1),
	(c) an order shall be made by statutory instrument, and
	(d) an order may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.'. [Mark Tami.]

Clause 239
	  
	Registration of charges

Amendments made: No. 68, in page 113, line 39, leave out 'entitled to' and insert 'interested in'.
	No. 69, in line 43, at end insert
	'(2) The reference in subsection (1) to Part 25 of the Companies Act 2006 includes a reference to
	(a) Part 12 of the Companies Act 1985 (which has effect until the commencement of Part 25 of the 2006 Act),
	(b) Part 13 of the Companies (Northern Ireland) Order 1986 (which has effect until the commencement of Part 25 of the 2006 Act), and
	(c) any provision about registration of charges made under section 1052 of the Companies Act 2006 (overseas companies).'. [Mark Tami.]

Clause 246
	  
	Statutory instruments

Amendments made: No. 70, in page 117, line 30, at end insert
	(which are subject to subsections (4) to (6))..
	No. 71, in page 119, line 9, at end insert
	
		
			 '167 Borrowing from National Loans Fund Negative resolution'. 
		
	
	No. 72, in line 25, at end insert
	'(4) A power listed in subsection (5) may be exercised without a draft being laid before and approved by resolution of each House of Parliament if
	(a) the power is being exercised for the first time, and
	(b) the person exercising it is satisfied that it is necessary to exercise it without laying a draft for approval.
	(5) The powers are those in
	(a) section 2 (special resolution regime: meaning of bank),
	(b) section 47 (special resolution regime: partial transfers),
	(c) section 48 (special resolution regime: protection of interests),
	(d) section 60 (special resolution regime: third party compensation),
	(e) section 82 (special resolution regime: building societies: consequential),
	(f) section 85 (meaning of bank),
	(g) section 116 (bank insolvency: application of insolvency law),
	(h) section 124 (bank insolvency: building societies),
	(i) section 129 (bank insolvency: consequential provision),
	(j) section 143 (bank administration: multiple original transfers),
	(k) section 146 (bank administration: transfer from temporary public ownership),
	(l) section 150 (bank administration: application of other law),
	(m) section 152 (bank administration: building societies),
	(n) section 162 (bank administration: consequential provision), and
	(o) section 165 (Financial Services Compensation Scheme: special resolution regime).
	(6) Where an instrument is made in reliance on subsection (5)
	(a) it shall lapse unless approved by resolution of each House of Parliament during the period of 28 days (ignoring periods of dissolution, prorogation or adjournment of either House for more than 4 days) beginning with the day on which the instrument is made,
	(b) the lapse of an instrument under paragraph (a) does not invalidate anything done under or in reliance on it before its lapse and at a time when neither House has declined to approve it, and
	(c) the lapse of an instrument under paragraph (a) does not prevent the making of a new one.'. [Mark Tami.]

Clause 250
	  
	Commencement

Amendment made: No. 73, in page 121, line 20, at beginning insert 'The preceding provisions of'. [Mark Tami.]
	 Order for Third Reading read.
	 To be read the Third time on Monday  1 December.

Graham Stuart: On a point of order, Mr. Deputy Speaker. I understand that there will no longer be time today to hold my Adjournment debate on the River Humber and River Hull flood management strategies, and I wonder whether I can ask through you, Mr. Deputy Speaker, that Mr. Speaker look favourably on my application when the House returns, because my constituents, who were looking forward to having their grievances heard, will be disappointed not to have done so this evening.

Mr. Deputy Speaker: I can well understand the hon. Gentleman's disappointment at not being able to hold his Adjournment debate this evening. I am not in a position to guarantee these things, but I am quite sure that he will be able to have that debate early in the next parliamentary Session.
	 Sitting suspended,  pursuant  to Order  [ 20 November ].

ROYAL ASSENT

Message to attend the Lords Commissioners:
	 The House went;and, having returned:

Mr. Speaker: ( in the Clerk' s place at the Table): I have to acquaint the House that the House has been to the House of Peers, where a Commission under the Great Seal was read, authorising the Royal Assent to the following Acts:
	Education and Skills Act 2008
	Local Transport Act 2008
	Climate Change Act 2008
	Counter-Terrorism Act 2008
	Planning Act 2008
	Pensions Act 2008
	Dormant Bank and Building Society Accounts Act 2008
	Energy Act 2008

Prorogation
	  
	Her Majesty's Most Gracious Speech

Mr. Speaker: I have further to acquaint the House that the Lord President of the Council, one of the Lords Commissioners, delivered Her Majesty's most Gracious Speech to both Houses of Parliament, in pursuance of Her Majesty's Command. For greater accuracy I have obtained a copy, and also directed that the terms of the Speech be printed in the Journal of this House. Copies are being made available in the Vote Office.

HER MAJESTY'S MOST GRACIOUS SPEECH

My Lords and Members of the House of Commons
	 My Government has pursued policies to ensure economic stability, to respond to the rising aspirations of the people of the United Kingdom and to ensure security for all.
	 Legislation has been brought forward to protect depositors and to ensure confidence in the banking system.
	 An Act has been passed to enable unclaimed money in dormant bank accounts to be used for youth facilities, financial inclusion and social investment, while ensuring customers retain the right to reclaim their money.
	 An Act has been passed to reduce the regulatory burdens on businesses.
	 Legislation has been enacted to provide for long-term reform of pensions and place a duty on every employer to contribute to workplace pensions for their employees.
	 An Act has been passed to provide better protection for vulnerable workers and to reduce burdens on employers.
	 My Government has taken further action to meet people's aspirations for better education, housing and healthcare.
	 An Act has been passed to ensure that young people stay in education or training until the age of 18, and to provide new rights for adults to receive skills training.
	 A draft bill has been published to reform apprenticeships.
	 Legislation has been enacted to create a stronger health and adult social care regulator, with a remit to assure the safety and quality of care for patients and users of services.
	 An Act has been passed to reform the regulation of human embryology and to ensure that the United Kingdom remains at the forefront of medical research.
	 Legislation has been enacted to create a new Homes and Communities Agency that will deliver more social and affordable housing. It will promote regeneration and create a new Tenant Services Authority which will give tenants more choice and influence over how their homes are managed.
	 Legislation has been enacted to reform the planning system, providing for quicker and more transparent decision making, and to enable the introduction of the Community Infrastructure Levy.
	 My Government has worked to protect the environment and to tackle climate change, both at home and abroad.
	 Legislation has been enacted to make the United Kingdom the first country in the world to introduce a legally binding framework to reduce carbon emissions, by 80 per cent of the 1990 levels by 2050.
	 Legislation has also been enacted to provide clean and secure supplies of energy.
	 An Act has been passed to tackle congestion and improve public transport.
	 My Government brought forward legislation to grant the powers to secure land, to build and to maintain the Crossrail scheme in the South East of England.
	 Legislation has been enacted to reform the criminal justice system with the aim of protecting the public and reducing offending.
	 An Act has been passed to protect the public from terrorism by improving powers to gather and share information and to ensure the effective prosecution of suspects.
	 A draft bill has been published on Citizenship and Immigration.
	 Legislation has been brought forward on the regulation of party finance and expenditure and to ensure the effective administration of elections.
	Members of the House of Commons
	 I thank you for the provision you have made for the work and dignity of the Crown and for the public service.
	My Lords and Members of the House of Commons
	 My Government continues to work closely with the devolved administrations in Scotland, Wales and Northern Ireland.
	 My Government has worked to secure a prosperous and secure European Union, better able to respond to the challenges of globalisation.
	 Legislation has been enacted which enabled the ratification of the European Union Lisbon Treaty.
	 My Government has continued to work with the United Nations, the G8 and the European Union to prevent the spread of weapons of mass destruction and to address international concerns on nuclear proliferation and terrorism.
	 The Duke of Edinburgh and I were pleased to pay State visits to Uganda in November 2007 for the Commonwealth Heads of Government meeting, to Turkey in May and to Slovenia and Slovakia in October. We were also pleased to receive President Sarkozy during his State visit to the United Kingdom in March.
	 My Government remains committed to peace in the Middle East. It has continued to support the Governments of Iraq and Afghanistan to deliver security, political reconciliation and economic reconstruction.
	 My Lords and Members of the House of Commons: I pray that the blessing of Almighty God may rest upon your counsels.
	A Commission was also read for proroguing the present Parliament, and the Lord President said:
	My Lords and Members of the House of Commons: by virtue of Her Majesty's Commission, which has now been read, we do in Her Majesty's name, and in obedience to Her Majesty's commands, prorogue this Parliament to Wednesday the Third day of December to be then here holden, and this Parliament is accordingly prorogued to Wednesday, the Third day of December.
	 End of the Third Session (opened on 6 November 2007 ) of the Fifty-Fourth Parliament of the United Kingdom of Great Britain and Northern Ireland in the Fifty-Seventh Year of the Reign of Her Majesty Queen Elizabeth the Second.